IBM shares fell more than 5% in after-hours trading Wednesday after the company reported a fifth straight quarter of falling sales despite the first contributions of its Red Hat acquisition.
For third quarter, IBM’s sales dropped 3.9% to $18.03 billion, missing analysts’ estimates of $18.22 billion. Excluding certain items, it earned $2.68 per share, just ahead of estimates of $2.67 per share.
Red Hat revenue grew 19% on a normalized basis, up 14.8% from its last quarter as an independent company, and cloud revenue increased 11% to $5.0 billion. IBM has made a $34 billion bet that Red Hat will give it a dominant position in the hybrid cloud market as it seeks growth outside its ailing legacy IT business.
“Our results demonstrate that clients see IBM and Red Hat as a powerful combination and they trust us to provide them with the open hybrid cloud technology, innovation, and industry expertise to help them shift their mission-critical workloads to the cloud,” CEO Ginni Rometty said in a news release.
But IBM shares dropped 5.2% to $134.75 in the extended session. “The company’s cloud business hasn’t been able to make up for declining sales in its services, hardware and financing businesses,” CNBC said.
As The Wall Street Journal reports, Rometty has for years “been trying to reinvent IBM, with bets on areas such as health-care technology and artificial intelligence. Cloud computing … is another cornerstone of Ms. Rometty’s bid to revive IBM’s fortunes.”
But third-quarter revenue from IBM’s biggest segment, global technology services (GTS), which includes technology support services as well as infrastructure and cloud services, fell 5.6% to $6.70 billion.
CFO Jim Kavanaugh said GTS customer business volumes were lower than expected. “That is high-value, high-profit, and when it hurts you at the latter part of the month, it definitely falls to the bottom line,” he told analysts on a conference call.
Mainframe computer sales also fell and the new version of its mainframes aren’t expected to affect financial results in a significant way until the current quarter, according to the WSJ.