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IBM Q1 2020 earnings

Cade Metz and Arvind Krishna, then senior vice president and director at IBM Research, speak on stage at the Wired Business Conference in New York on June 16, 2016.

Brian Ach | Wired | Getty Images

IBM stock dropped 3% in expanded trading on Monday after the company released first quarter results that showed a return to sales declines as corona virus entered.

Here’s how the company did it:

  • Merits: $ 1
    .84 per share adjusted
  • Revenue: $ 17.57 billion

The analysts surveyed by Refinitiv had expected adjusted earnings per share of $ 1.80 for the first quarter with sales of $ 17.62 billion. However, comparing IBM’s results with analyst estimates is not easy since the quarterly corona virus affected economies around the world.

According to a statement, IBM has withdrawn its full year guidance under Covid-19. IBM’s guidance for 2020 adjusted for earnings per share of at least $ 13.35. According to Refinitiv, analysts expected adjusted earnings of $ 11.73 per share. Three months ago, the company also demanded growth in sales, earnings on an adjusted basis, and free cash flow for 2020, as well as a higher gross operating margin.

Quarterly net income for the quarter was $ 1.18 billion, a decrease of 26% year over year. Sales declined 3.4% year-on-year in the first quarter as the company dealt with the spread of corona viruses and instructed employees to work remotely. A quarter ago, the company ended a series of five consecutive quarters with falling sales.

“Looking at the first quarter, we roughly met our expectations by February,” said IBM CFO Jim Kavanaugh in a conference call with analysts on Monday. “When we came in March, the health situation and the resulting social distance spread. As expected, the priorities of the customers have changed noticeably. This effectively gave a break because customers understandably dealt with their most pressing needs. This was most pronounced in our software business, where the vast majority of transactions were completed in the last two weeks of the quarter. “

Krishna also attended the quarterly analyst conference call on Monday after predecessor Ginni Rometty was absent from these calls for years.

“My approach is straightforward,” said Krishna. “I will focus on increasing the value of the company, including better aligning our portfolio to hybrid cloud and AI [artificial intelligence] to meet the evolving needs of the market. We will continue to invest, including acquisitions. As you have seen, we have sold parts of software and services that do not match our focus areas. This continues. “

IBM’s Global Technology Services segment, which includes infrastructure and cloud services as well as technology support services, generated sales of $ 6.47 billion, down 5.9% year over year. It was below the $ 6.51 billion analysts surveyed by FactSet.

The company’s Cloud and Cognitive Software segment, which includes transaction processing platforms, cognitive applications, and cloud and data platforms such as Red Hat, generated sales of $ 5.24 billion. It rose 5.5% and was below the FactSet consensus estimate of $ 5.30 billion. Red Hat sales increased 18% on a normalized basis. Some customers chose to postpone purchases, which resulted in a drop in sales, he said.

Global Business Services, the consulting, application management and process services segment, contributed $ 4.14 billion in sales, a decrease of 0.5% year over year. The result exceeded the FactSet consensus of $ 3.91 billion.
System sales of system hardware and operating systems totaled $ 1.37 billion. That number rose 3%, below the FactSet consensus of $ 1.42 billion. The Z series of mainframe computers within systems increased 59% as sales of the z15 mainframe continued.

Krishna, who has been with IBM since 1990, took charge of Rometty on April 6 as the company’s CEO. Previously, he was responsible for cloud and research in the company.

In the quarter, IBM announced a 10-year service contract with the Spanish Banco Sabadell, which includes a hybrid cloud component.

David Holt, analyst at CFRA Research, lowered his price target for IBM shares from USD 165 to USD 144 in a message distributed to customers on Monday.

“At the current level, we believe stocks have discounted future Covid 19 setbacks appropriately, especially considering the weak revenue base IBM is starting with,” wrote Holt, who maintained his buying rating for IBM stocks. “Oddly, the current background could be in IBM’s favor, as we believe the company may see a lower downward correction than most others in our reporting, which makes it easier for fundamentals to exceed current expectations, especially given the current one embedded healthy levels of fear of the market. ”

Without taking into account the activities after the publication of the income statement, IBM shares have fallen by around 10% since the beginning of the year.

CLOCK: CNBC’s full interview with new IBM CEO Arvind Krishna

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