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IBM Lower on Declining Revenues

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Shares in IBM are trading a little lower pre-market on Tuesday following the group’s Q3 earnings release yesterday. IBM posted third-quarter earnings per share of $2.58. Revenues came in at $17.56 billion, narrowly beating expectations for a $17.54 billion result.

Revenues Declines Again

Despite the revenues beat, revenues have actually declined now for three consecutive quarters, with the Q3 result marking a 2.5% reduction from the prior quarter. The pattern of declining quarterly revenues is a theme being closely watched by investors and raises worrying questions about the performance of new CEO Arvind Krishna.

IBM’s business has been heavily impacted by the COVID 19 pandemic due to its exposure to business sectors such as retail and transportation. These, of course, have been severely disrupted over the course of the pandemic.

Business Separation Announced

On October 8th Krishna announced a big change for IBM. He noted that the firm’s managed infrastructure services section of the IBM Global Technology Services unit would become its own independent.

Krishna said that the company aims to deliver “sustainable mid-single-digit revenue growth over the medium term”.

In Q3, the Global Technology Services section of IBM saw revenues of $6.46 billion, marking a 4% year on year reduction. Meanwhile, IBM’s cloud and cognitive software business, including Red Hat, contributed $5.55 billion in revenue. This marks a 7% increase on the same period a year prior. It also comfortably beat expectations of a $5.48 billion figure.

The Global Business Services sector contributed revenues of $3.97 billion, down 5% from the same period a year prior. Meanwhile, systems revenue was down by 15% year on year to just $1.26 billion.

Elsewhere, IBM reported that the company’s free cash flow was $1.10 billion over the quarter. This undershot expectations of a $2.26 billion reading. It also marked the lowest free cash flow result since Q1 2001.

COVID Uncertainty Creates Downside Risks

Following the pulling of full-year guidance in April, citing the uncertainty with regards to the COVID pandemic, IBM did not issue any full-year guidance this time around.

Shares in IBM are now down around 6% on the year. Given the increasing concerns over the prospect of fresh global lockdown measures, the outlook for the company’s full-year performance is not looking particularly encouraging.

IBM Reverses From Resistance

ibm shares

Following the breakout above the bearish trend line from 2020 highs, IBM shares have since traded as high as the 135.42 level before reversing lower. Price is now trading back below the 128.80 level. While price holds below here, a further decline to the 115.51 level cannot be ruled out.

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