IBM ends 2019 on a 'strong note'

IBM ends 2019 on a 'strong note'

IBM ends 2019 on a 'strong note'

Beating analysts' estimates for earnings and revenue, the stock was seen trading 5% higher later in the day.

Big Blue's adjusted earnings fell while the underlying GAAP net profit almost doubled. The firm had revenue of $21.78 billion for the quarter, compared to the consensus estimate of $21.62 billion.

Looking at the full 2019 year, IBM said GAAP earnings per share from continuing operations totalled $10.57, while operating, non-GAAP earnings per share were $12.81.

"We ended with a strong note in 2019 and returned to total revenue growth in the quarter, driven by accelerated cloud performance", said IBM CEO Ginni Rometty.

"After the acquisition of Red Hat, and with strong free cash flow and disciplined financial management, we were reduced considerably in the second half of the year", said James Kavanaugh, IBM's financial director.

The cloud and cognitive segment has had its revenue rise by 8.7 per cent, to $7.2 billion for the fourth quarter. In the same period a year ago, the company reported EPS of $4.87 on revenues of $21.76 billion.

Most improved is Systems, which includes Systems Hardware and Operating Systems Software led by the IBM Z, with revenues of US$3.0 billion, up 16% from Q4 2018. Storage systems showed growth but technology services revenue in the quarter fell 4.8%. Holding the segment afloat was the Consulting arm, which grew four percent. After seeing shares underperform the market for years, IBM is finally looking up.

The company forecast an adjusted profit of at least US$13.35 per share for the year, compared with estimate of US$13.29. The company also expects a free cash flow of approximately US$12.5 billion, which would be a five percent increase from 2019's free cash flow of US$11.9 billion.

The company had changed its reporting structure previous year - its two biggest segments now are cloud and cognitive software, and global technology services.

IBM has said that it would report only a portion of Red Hat's actual revenue for some quarters, while recording all its expenses as required by United States accounting standards.

What's the call on share price?

IBM shares are trading up about $6 in Tuesday's after-hours session as I write this, which would put them less than $2 away from the current average price target on the street.

So far, January 2020 is already proving to be better than the last three months of 2019, which saw share price stuck around the US$132 to US$136 region.

The results beat Wall Street expectations.

The earnings surprise is all the more notable given that enterprise suppliers like Cisco Systems Inc., Dell Technologies Inc., Hewlett Packard Enterprise Inc. and NetApp Inc. have recently reported weakening demand. A large and increasing portion of this investment will be on open hybrid and multicloud environments that enable them to move information across different environments.

"We're off to a great start with Red Hat, with solid revenue trajectory and expanding client base, both good indicators of our clients' confidence in the value of IBM and Red Hat together", Kavanaugh said. "All types of tech companies have been growing expect for IBM".

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