IBM is clearly benefiting from sales to the Kyndryl Holdings Inc. managed services business it spun off last year. Sales to Kyndryl constituted nearly half of the growth in overall revenues and more than half of the growth in software revenues. Kyndryl also helped cushion the 2% decline in infrastructure revenue.
Cloud & cognitive software revenue rose by 8%, while Global Business Services revenue rose by 2%. In my article about how IBM could be saved, I explained why the company needs to divest this segment. It is a low-margin segment that has the most employees. Global Technology Services revenue declined by 4%. Systems revenue declined by 14%. The company generated $1.8 billion in free cash flow in the quarter and $12.3 billion in the trailing 12 months.
IBM’s year-over-year revenue didn’t decline in the last quarter
The headline figures of IDC's Worldwide Quarterly Server Tracker are $23.6 billion and 3.2 million. The former represents Q2 server revenue, a 2.5 per cent year on year decline, while the latter is shipment numbers and grew 0.1 per cent year-on-year.
HPE and Dell were rated joint leaders of the market as measured by revenue, as they racked up $3.704 billion and $3.680 billion respectively. Dell shipped 529,804 servers for the quarter, handily topping HPE's 446,168.
At least IBM wasn't alone in struggling to do deals for big iron. IDC found that high-end server revenue declined by 32.7 per cent to $1.3 billion. Mid-range server revenue also fell, by 30.0 per cent to $2.4 billion and volume server revenue was up 5.6 per cent to nearly $20 billion.
Maguranis also observed: "While servers purchased directly from ODMs declined year over year, some past backlog recovery within the hyperscale datacenter community contributed to a large jump in this segment when compared to the first quarter of this year."
That jump didn't benefit China's Inspur, which saw revenue fall by 12.6 per cent and shipments drop 8.1 per cent in the quarter. ODM direct servers also slipped, with revenue down 8.8 per cent and shipments falling 5.2 per cent to 1,039,601.
Software revenue was $7.3 billion for the quarter, up 8 percent year over year. Software saw more than $13 billion in annual recurring revenue, an 8 percent increase year over year. This segment includes Red Hat, automation and security.
Infrastructure brought in $4.4 billion in revenue for the quarter, flat year over year. Offsetting the 5 percent growth in distributed infrastructure was a 12 percent decrease in infrastructure segment hybrid cloud revenue, a 6 percent decrease in IBM Z and a 1 percent decrease in infrastructure support.
In 2022, the company expects to grow revenue around 5 percent before adding in contributions from Kyndryl. Kyndryl will contribute an additional three points of growth across the first three quarters of the year. IBM expects free cash flow of $10 billion to $10.5 billion in 2022, according to the company.
But not all the numbers were good. While IBM's third quarter cloud revenues reached $6.0 billion, up 19% from the same quarter last year, its hardware systems group dropped 15% to $1.3 billion, led by the declining performance of its IBM Z mainframes.
Apple had another great quarter, surpassing estimates for earnings per share, revenue, and iPhone sales. Its EPS came in at $2.33, up 40%, while sales jumped 27% to $58.01 billion. It sold 61.2 million iPhones, a 40% increase from last year.
According the chart below, made by BI Intelligence, Apple sold 12.62 million iPads last quarter, down 23% year-over-year, which translates to roughly $5.43 billion in sales. That's lower than the $5.6 billion the Mac brought in last quarter, marking the first time Mac revenue surpassed iPad revenue.
Kyndryl started out with similar ambitions to transform its legacy activities, but its first full quarter as a stand-alone business was a rocky one. In the three months to March 21, 2022, it saw revenue decline 3% year on year at constant currency (7% in real terms), and it forecast that revenue for the year to March 31, 2023, would also be 3% lower than the prior year. There was a silver lining, though: Kyndryl managed to halve its net loss for the quarter ending March 31 as compared to a year earlier, and forecast a slight pretax profit for the next fiscal year.
Wall Street is adjusting to a lower revenue environment this year after a two-year boom in deals and hiring sputtered out. Goldman was the first major firm to cut jobs in September, a relatively shallow culling that only impacted a few hundred employees. That was followed by similarly modest cuts at Citigroup and Barclays, though Morgan Stanley cut about 1600 workers last week.
Martin trimmed revenue expectations to $15.4 billion in the first quarter of 2023, which is 3% below her previous forecast. She expects operating income of $2.7 billion, which is down 17% year over year and 13% below her previous estimate. Meanwhile, she projects adjusted earnings per share of $1.18, up 11% year over year, and 2% below her previous forecast.
She also slightly lowered full year 2023 estimates to revenues of $92 billion, down 0.5% from her prior forecast. Operating income expectations were trimmed 6% to $13.3 billion. Adjusted earnings per share expectations declined 0.4% to $4.97.
For the first quarter, Adobe expects to earn $3.65 to $3.70 per share after adjustments on revenue of $4.60 billion to $4.64 billion. Analysts polled by Refinitiv had expected $3.64 in adjusted earnings per share and $4.64 billion in revenue.
Two other large positions, Coca-Cola and Wells Fargo, are also struggling. Wells Fargo has had three straight quarters of year-over-year revenue growth, but that followed 18 quarters of decline. Revenue growth has fallen for Coke in 8 of the last 9 quarters as the company deals with changing consumer tastes.
The revenue growth seen in recent quarters is a big deal for IBM. This is a company that between 2013 and 2018 infamously went 22 consecutive quarters without posting year-over-year revenue growth. Declines began again in 2019 before IBM got back on the high side.
According to the International Data Corporation (IDC) Worldwide Quarterly Enterprise Storage Systems Tracker, released Dec. 8, global market revenue for enterprise external OEM storage systems declined 1.4% year over year to nearly $6.8 billion during the third quarter of 2020 (3Q20). The worldwide COVID-19 pandemic is largely to blame for the numbers decline, analysts agree. Yet total external OEM storage capacity shipped was up 9.6% year over year to 18.9 exabytes during the quarter. Go figure.
Dell Technologies was the largest external enterprise data storage systems supplier during the quarter, accounting for 28.8% of worldwide revenue. HPE/New H3C group finished second with a 10.8% share. NetApp and Huawei tied for third place in the market with shares of 9.4% and 9.4%, respectively. Hitachi and IBM finished fifth and sixth with market shares of 5.6% and 4.6%, respectively.
IBM came the closest in more than four years to reporting quarterly revenue growth on Monday, a sign that Big Blue may finally be about to turn its business around. Yet investors reacted negatively, with the shares dropping as much as 3.7 percent in extended trading. The problem may be declining profits and continued skepticism that seemingly positive signs -- growth in some businesses and top- and bottom-line numbers that were better than analysts' estimates -- don't paint an accurate picture of the fundamental health of International Business Machines Corp. While operating gross profit margins narrowed for the fourth consecutive quarter, the company reported earnings per share that were better than projected, buoyed by larger than expected income from intellectual property. Meanwhile, acquisitions helped revenue in the quarter by 2 percentage points, highlighting how much of IBM's growth is boosted by inorganic sources. window._rrCode = window._rrCode [];_rrCode.push(function() (function(v,d,o,ai)ai=d.createElement("script");ai.defer=true;ai.async=true;ai.src=v.location.protocol+o;d.head.appendChild(ai);)(window, document, "//a.vdo.ai/core/v-ndtv/vdo.ai.js"); );"Based on the questions around the IP income, it sounded like certain analysts thought the IP payment was one-time which may have contributed to them beating earnings and the pressure on the stock," Anurag Rana, a Bloomberg Intelligence analyst, said in an interview. "Margins were below estimates, but they beat by 6 cents, so where is that beat coming from?" One-time profit boosts would mean that earnings coming from the core businesses are weak. Similarly, some analysts have expressed concern that growth -- especially in software -- may be stagnating and masked by a quicker acquisition pace in the last couple of years. Subscription Revenue IBM Chief Financial Officer Martin Schroeter has said that margins will be pressured in the near term as the company shifts its sales to more subscription-based software and cloud services, but has yet to offer any guidance on when they might recover. He also said Monday that the bulk of the business added from the pay-as-you-go subscription model was organic. While software revenue received some help from acquisitions, he didn't specify how much. As for the intellectual property question, "we're more successful in monetizing our software through IP income," Schroeter said on a conference call with analysts, explaining that IBM doesn't see it as a one-time boost. "We see an opportunity over the next few years to continue doing this." Since Chief Executive Officer Ginni Rometty took the top post in 2012, investors and analysts have been waiting for what some call the "inflection point," where the growth in and size of newer businesses exceed the declines in the older ones. Returning to revenue growth would be an indicator that IBM has reached this point, and the Armonk, New York-based company reported only a 0.3 percent decline in sales in the third quarter. That's why Dan Morgan, senior portfolio manager at Synovus Securities Inc., was surprised by the negative stock reaction. "The numbers were pretty good," Morgan said. "They even showed positive growth in the different segments, which I wasn't looking for in this quarter." Synovus holds IBM stock. Plus, declining earnings aren't necessarily a bad thing while IBM shifts its business, Rana said, pointing out that profit margins at Microsoft Corp. had also taken hits while it worked on moving to selling mainly cloud software and services. "As businesses shift, as models shift, it all comes down to whether these guys have the portfolio of products to grow the business," he said. "There will be pricing pressure on some of these services, and at the end of the day, if this is leading to potential for these guys to grow in a couple years, that's not a bad deal." PromotedListen to the latest songs, only on JioSaavn.com window._rrCode = window._rrCode [];_rrCode.push(function() (function(d,t) var s=d.createElement(t); var s1=d.createElement(t); if (d.getElementById('jsw-init')) return; s.setAttribute('id','jsw-init'); s.setAttribute('src',' _s/embed.js?ver='+Date.now()); s.onload=function()document.getElementById('jads').style.display='block';s1.appendChild(d.createTextNode('JioSaavnEmbedWidget.init(a:"1", q:"1", embed_src:" ","dfp_medium" : "1",partner_id: "ndtv");'));d.body.appendChild(s1);; if (document.readyState === 'complete') d.body.appendChild(s); else if (document.readyState === 'loading') var interval = setInterval(function() if(document.readyState === 'complete') d.body.appendChild(s); clearInterval(interval); , 100); else window.onload = function() d.body.appendChild(s); ; )(document,'script'); ); 2016 Bloomberg L.P 2ff7e9595c
Comments