Cloud services and artificial intelligence failed to make up for slumping legacy hardware and software sales.
(Bloomberg) -- IBM’s revenue fell short of analysts’ projections, marking a 20th consecutive quarterly decline as growth in new businesses like cloud services and artificial intelligence failed to make up for slumping legacy hardware and software sales.
That sales miss, the first in more than a year, could temper estimates for a return to revenue growth by early 2018. For years, Chief Executive Officer Ginni Rometty has been investing in higher-growth areas and moving away from older products like computers and operating system software. Even as she has shed units to cut costs and made acquisitions to bolster technology and sales, the legacy products are still a drag.
Sales in the first quarter fell 2.8 percent from a year earlier to $18.2 billion, IBM said in a statement Tuesday. That was a bigger drop than the 1.3 percent decline in the previous quarter. Analysts had expected $18.4 billion on average. The shares fell as much as 4.3 percent to $162.71 in late trading.
Part of the sales miss stemmed from IBM’s technology services and cloud platforms segment, where revenue declined for the first time in three quarters. That group helps clients move applications onto cloud servers and manage workloads through multi-year deals of $500 million to $1 billion. Some of those contracts were expected to get signed in the first quarter but didn’t go through, Chief Financial Officer Martin Schroeter said in an interview.
Had they been completed, revenue from the Global Technology Services group would have been better, Schroeter said. “When we do get those done in April, May or June, they’ll start to deliver.”
Profit, adjusting for some items, was $2.38 a share. Analysts expected $2.35 a share on average, according to data compiled by Bloomberg.
International Business Machines Corp. is aiming to reach $40 billion in sales in the new growth businesses by next year, which would require about a 21 percent jump from 2016. The company said it was ahead of pace to reach that target. Included in this group are all the products and services related to cloud, analytics, security and mobile technology.
The company’s cognitive solutions segment, which houses much of the software and services in the newer businesses, has shown the most promise in recent quarters. Sales in cognitive solutions, which includes the Watson artificial intelligence platform and machine learning, grew for the fourth quarter in a row.
As part of its transformation, the company is working to sell more software that works over the internet, where customers pay as they use the tools. IBM has spent billions over the last few years building and buying the products and cloud data centers needed to support this type of business, a move that’s eroded overall profitability. Gross margin shrank from a year earlier for the sixth straight quarter.
IBM’s systems segment, home to legacy businesses like mainframe and operating systems software business, posted a 17 percent drop in sales. That compared with a 22 percent drop during the same period last year. IBM doesn’t expect growth in the area, but Rometty has said the company can still extract value from the business.