IBM’s Q4 Revenues Grow, One-Time Charges Lead To Net Loss

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IBM (NYSE:IBM) posted its Q4 results on January 18. For the first time in several quarters, IBM’s revenues grew as its systems division reported excellent growth amid the shift to cloud computing services. During the quarter, the company’s revenues grew by 3.5% to $22.5 billion while its consolidated gross margin declined by 185 basis points to 48.2% for Q4. Furthermore, the company reported a loss from continuing operations at $1 billion as a one-time charge of $5.5 billion associated with enactment of tax reform impacted profits. The stock price declined by 3% in aftermarket trading as the tax reform will actually increase company’s effective tax rate from 12% in 2017 to 16% in 2018, reducing its cash flows for the year. The highlights of the results are as follows:

  • Revenues for Cognitive Solutions, which includes Solutions Software and Transaction Processing Software, grew by 3% to $5.4 billion. Both the annuity and transactional subsegments reported growth. Additionally, the SaaS business saw double-digit growth in signings and revenue during the quarter.
  • Global Business Services, which includes consulting, global process services and application management, reported a 1.5% decline in revenues to $4.2 billion. However, the company expects revenues to improve in 2018 as its order backlog grew in 2017.
  • Revenues for Technology Services & Cloud Platforms, which include infrastructure services, technical support services, and integration software, declined by 4% y-o-y to $9.2 billion. The company continued to witness robust growth for its cloud-based infrastructure services and this will drive revenue growth margins in the coming years
  • Systems revenues, which includes systems hardware and operating systems software, grew by 28% to $3.3 billion as sales from the recently refreshed Z-systems grew by 71%. Additionally, Power servers reported growth in Q4 as the next-gen POWER9 system went on sale during the quarter. Storage hardware reported 8% growth in revenues driven by double-digit growth in high-end hardware product lines and all-flash array offerings. However, margins declined marginally compared to last year, consistent with product cycle dynamics.

We have a $151 price estimate for IBM, which is slightly below the current market price.

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