IBM Faces a Hard Time Despite Earnings Beat

International Business Machines Corp. (NYSE: IBM) is still currently facing a hard time as the company’s CEO Ms. Ginni Rometty intends to turnaround the business. IBM recently reported its earnings results for the first quarter of fiscal year 2016, wherein it was able to beat the estimates of analysts. Despite this, the company’s shares plunged by nearly 5 percent during the after-hours trading because of its weak guidance and dropping sales.

The tech corporation is popular for its hardware and computers, but it has been significantly threatened during the past couple of years from individuals moving toward computing services over the internet. The IBM CEO took charge approximately 4 years ago and is still attempting to revive the company. IBM has experienced declines in revenue within the last 16 consecutive quarters and this is primarily due to the drop in hardware and services segments. The tech giant is now shifting toward some growth areas, such as cloud computing, which has displayed huge potential. However, this is still overshadowed by the plunge in the hardware sector and IBM still needs several years to prove the segment’s potential.

IBM reported an $18.68 billion revenue, representing a 5 percent drop on a year-over-year basis, but managed to beat the analysts’ forecasts of $18.28 billion. Meanwhile, the tech company’s earnings per share came in at $2.35, in comparison to the estimates of $2.09 per share. The earnings of IBM were also down by 19 percent on a year-over-year basis. Nearly all of the sectors display a drop in revenues with the greatest decline of approximately 22 percent coming from the operating systems and hardware. Strategic Imperatives posted a $7 billion revenue and Cloud reported a revenue of $2.6 billion, representing a growth of 14 percent and 34 percent, respectively. During the first quarter, the tech giant returned about $2.2 billion to investors through share buybacks and dividends.

IBM is now turning its focus toward its growth businesses. The company’s CEO stated, “We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms. IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market.”

The tech giant posted weak full year guidance for this year last quarter, and the guidance stayed nearly the same this time. The firm anticipates full year non-GAAP earnings per share to stand at least $13.5 per share. For the free cash flow, the company previously had forecasted it to be within the range of $11 billion to $12 billion. It now expects to stand at the high end of the mentioned range at the same base level of non-GAAP earnings per share.

As stated during the month of February, the tech giant also changed its financial reporting structure to represent its transformation and show shareholders more information regarding the strategic imperatives revenue by segment. IBM displayed results of new segments such as Global Business Services, Cloud Platforms, Cognitive Solutions, Technology Services Global Financing, and Systems.

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