International Business Machines Corp. For many investors, it's not moving fast enough to be on the way to becoming a Cloud / Artificial Intelligence company, as the reaction to first quarter results has shown.
Earlier Tuesday, IBM
IBM + 1.91%
posted gains for the first quarter that surpassed Wall Street consensus expectations. Adjusted earnings per share were $ 2.45 per share on revenues of $ 19.07 billion, compared to $ 2.82 per share for revenues of $ 1
However, as Daniel Ives, head of research at GBH Insights, noted, the price increase was due to a one-off tax benefit of $ 817 million in the quarter.
In addition, IBM Chief Financial Officer James Kavanaugh said analysts at the company's conference call that they should not count on a continuous upward trend in the last two quarters of new mainframe sales to stay in the second half. In the last quarter, IBM achieved its first sales growth in five years, thanks to the sale of its new mainframe.
"If we go into the second half, we have a significant headwind in the mix because we do not count on more than a typical mainframe cycle," Kavanaugh said, adding that it would be "not advisable" analysts. " "to underpin our $ 13.80  mainframe cycle break guidance," though IBM is using the new Series Z systems to make major technological changes with new features such as blockchain encryption IBM's oldest company is still a cyclical business, but strong quarterly sales helped IBM's system business grow by 8% to $ 1.5 billion.
None of this was good news for investors and investors IBM shares fell almost 6% in after-hours trading after the broader Dow Jones Industrial Average market made a profit for the day
DJIA, + 0.87%
closed 0.9% on Tuesday. This year, IBM shares rose 4.9%, while the Dow rose 0.3%.
IBM wants investors to focus on "strategic imperatives," which account for 47% of IBM's total revenue in the quarter, and include cloud computing revenue, analytics, mobile, and security. These imperatives include IBM's Cognitive Solutions segment, which includes software, analytics, and the highly-regarded artificial intelligence platform Watson. IBM's Watson is the first commercially available AI platform that can interact in natural language, process large amounts of big data, and learn from interactions with people and systems. It is integrated into the entire business of solutions for cognitive solutions. Cognitive solutions, which include software solutions and transaction processing software, grew 6% to $ 4.3 billion in total revenue. This is a slightly lower growth rate than in the systems business.
Kavanaugh said only that Watson Financial Services had a strong quarter but has not specified specific numbers.
"Our first quarter results reflect much of the work we've done to reposition our portfolio and our abilities, the secular trends in the market, led by the phenomenon of data," said Kavanaugh.
Ives said that IBM's strategic businesses are not growing fast enough for investors, although IBM's 15 percent growth in strategic imperatives this quarter was generally line with estimates. "The Bulls were hoping for a clean, modest blow to this important growth segment, which would form the basis for the turnaround of IBM in 2018 and beyond," Ives said in a note to customers. In an email, Ives said he did not have an estimate for Watson himself. "This is an important factor in strategic needs and contributes to double-digit growth," he said.
Bernstein Research Analyst Toni Sacconaghi wrote in a profit forecast that he believes much of IBM's strategic growth was driven by the mainframe in the first quarter.
"It is noteworthy that the mainframe cycle contributed about 400 basis points to the strategic growth of Q4 17," Sacconaghi wrote in a note to customers. "If IBM goes back to the mainframe cycle in the second half of 2018, we could see strategic growth with strategic growth of up to 5-6% at constant exchange rates in the fourth quarter."  IBM is still in the middle of a turnaround. "In a nutshell, the patience on the road around the IBM turnaround story continues to be elusive," Ives said, adding that the quarterly forecast "adds more uncertainty to the story."