IBM missed market estimates for quarterly revenue on Wednesday as its managed infrastructure business suffered a drop in pre-orders ahead of a spinoff next month, causing its shares to fall 4%. The low-margin, legacy unit provides technical support to IBM’s customers and has shrunk in recent years as companies moved to the cloud, putting pressure on Big Blue’s earnings.
Chief Financial Officer James Kavanaugh said in an interview, “As we release the effective date for the spin-off of our managed infrastructure business, our clients halted all new project activity at the end of September and this affected us.” happened.”
In the third quarter ended September 30, the global technology services arm, which has a business to be called Kindrill after the spinoff, fell 4.8 percent to $6.15 billion (about Rs 45,960 crore) in revenue.
Kavanaugh also said that demand in the systems business for IBM’s mainframe computers has declined as the end of the product cycle nears, leading to a 12 percent drop in unit revenue.
The slowdown in the legacy business has prompted 110-year-old IBM to focus on hybrid-cloud, an area where it needs $1 trillion (about Rs 74,73,470 crore) to fuel growth and better compete with Amazon. ) market opportunity appears. and Microsoft.
Revenue in the cloud and cognitive software unit was up 2.5 per cent at $5.69 billion (about Rs 42,530 crore), according to Refinitiv data, but was at $5.77 billion (about Rs 43,130 crore) by analysts’ estimates.
Wedbush analyst Moshe Cuttery said IBM’s “revenue in perceived high-growth areas is more problematic than the lack of revenue”.
Total revenue rose slightly to $17.62 billion (approximately Rs 1,31,700 crore), which was outside expectations of $17.77 billion (approximately Rs 1,32,850 crore).
But IBM’s revenue, adjusted for the Kindle spinoff, was 2.5 percent higher, helped by demand for its consulting services from enterprises digitizing their operations during the COVID-19 pandemic.
IBM earned $2.52 (approximately Rs 190) per share on an adjusted basis, compared to estimates of $2.50 (approximately Rs 185).
© Thomson Reuters 2021