IBM’s Q4 Results Don’t Ease Investor Doubts

The stock falls 5% despite stronger-than-expected growth in cloud computing and other businesses IBM hopes will fuel a turnaround.
Katie Kuehner-HebertJanuary 20, 2016

Stronger-than-expected growth in cloud computing boosted IBM’s fourth-quarter results, but the stock fell more than 5% Wednesday about continuing investor doubts about its turnaround plan.

CEO Ginna Rometty has been betting that IBM’s “strategic imperatives” including cloud, analytics, mobile and security businesses will fuel a resurgence for the company as it tries to navigate the “post-PC” era.

IBM’s revenue in the fourth quarter fell 8.5% to $22.1 billion, but that topped the analysts’ consensus estimate of $22.02 billion due to stronger-than-expected growth in cloud computing and related businesses. For the full year 2015, revenue from those businesses increased 26% on an adjusted basis to $29 billion, about 35% of total revenue.

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But per-share earnings from continuing operations were down by 17.4% for the quarter to $4.60, and for the full year down 12.9% to $13.66. And IBM said the strong U.S. dollar would reduce 2016 pretax profit by $1.3 billion, and that earnings per share for the year should come in at $13.50, below analysts’ expectations in the $15 range.

In trading Wednesday, IBM shares were down more than 5% at $121.52.

“We’re transforming a big company,” IBM’s CFO Martin Schroeter told the Wall Street Journal. “We’ve always said that this was going to take time.”

The firm has already sold declining hardware businesses and doubled down on cloud computing and artificial intelligence software, as it competes with the likes of Amazon Web Services  and others, the WSJ said.

IBM’s total cloud revenue, which includes hardware and professional services revenue, rose 43% to $10 billion for the year.

“We continue to make significant progress in our transformation to higher value,” Rometty said in a news release, adding that IBM “strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud.”

But 24/7 Wall St. said Rometty “has run low on time to demonstrate that her turnaround plans are valid.”

“Unquestionably, cloud figures have improved impressively, but the balance of the business ruins IBM more with each quarter, and cloud computing may be the most competitive sector among large tech companies,” it said.