wnol.info July 20 2018

Why IBM Earnings Got the Big Blues

July 20 2018, 06:49 | Alonzo Simpson

The logo for IBM is seen at the SIBOS banking and financial conference in Toronto Ontario Canada

The logo for IBM is seen at the SIBOS banking and financial conference in Toronto Ontario Canada

IBM cloud revenue for 2017 was $17 billion, up 24% in year over year, with more than $9.3 billion of the total being a service.

IBM ended the fourth quarter of 2017 with $12.6 billion of cash on hand. The GAAP result includes a one-time charge of $5.5 billion in connection with the tax reform bill. That bill also included "the revaluation of deferred tax assets and liabilities", we're told. Adjusted earnings, which IBM calls "operating earnings", are expected to grow to $5.16 per share, up from $5.01 per share in the fourth quarter of 2016.

IBM has undergone a multiyear wide-ranging turnaround in which it shed old lines of business and created new ones, in areas such as artificial intelligence, cloud computing, Big Data analytics and mobile.

The strategic imperatives will continue to grow "as we embed cognitive and cloud in more of what we offer", Schroeter said.

What is cloud computing?

However, the company's report was skewed thanks to the recent tax overhaul enacted by President Trump, as a chunk of IBM's profits have traditionally been kept outside of domestic corporate tax laws set at 35%. However, this growth was more than offset by slumping sales in the various legacy businesses that comprise the remaining portion of IBM's revenue. IBM refused to talk about changes to its services devisions.

Annual revenues were slightly down to $79.1bn (£56.9bn) from $79.9bn (£57.5bn) in 2016. That tax rate will be up from 12% in 2017.

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Quarterly results posted on Friday showed a modest increase of 4% overall, thanks largely due to a rise of 32% within its systems arm, which includes the recently released IBM Z mainframe, and a 30% jump for its cloud division. The company returned $9.8 billion to shareholders through $5.5 billion in dividends and $4.3 billion share buybacks.

Global Business Services revenue was $16.35bn, down a touch from $16.7bn a year ago.

Tech-giant IBM closed out the 2017 calendar year with a rise in revenues for the first time in nearly six years, but shares slipped in early trading after the firm warned that higher tax rates would eat away at its profits from the current trading year.

IBD'S TAKE: IBM shares are up 22% from an August low, climbing the right side of a possible 11-month base pattern.

"Last quarter, IBM saw an acceleration in its software business, with software revenue growing 0.3 per cent organically at constant currency - its first quarter of software growth since Q1 2014".

Tiffany's same-store sales in the Americas rose six percent in the holiday season, helping raise the company's 2017 full-year forecast for sales and earnings. "Our belief is that IBM benefited from software renewals and ELAs [enterprise licensing agreements], which we believe are unlikely to repeat [in the fourth] quarter". Initial concerns were the Watson AI solution, the poster boy of IBMs recovery, demonstrated relatively flat year-on-year sales, but confidence from some heavy hitting financial players seemed to have removed any doubt.

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