IBM Soars Most Since 2009 After Forecasting Revenue Growth

After more than five years of declining sales, IBM says it will finally show investors it can grow again, according to Bloomberg.

Some of that sales boost will come from one of the company’s legacy hardware businesses, rather than the new services such as cloud and data analytics on which IBM has been pinning its prospects for growth. Wall Street cheered, sending the shares up the most in more than eight years.

Fourth-quarter revenue is projected to be $22 billion to $22.1 billion, which will represent as much as a 1.5 percent bump from the same period in 2016. It also tops analysts’ average estimate of $21.8 billion. In the last quarter of the year, historically IBM’s strongest, revenue will improve by as much as $2.9 billion sequentially, boosted in part by sales of its new mainframe server, CFO Martin Schroeter said Tuesday.

“The mainframe is going to drive a lot of the positive growth in the fourth quarter,“ said Josh Olson, an analyst at Edward Jones & Co. “When you’re selling mainframes, you’re also selling a lot of software and services with that.“ He rates the stock a hold.

The revenue forecast, coupled with growth in a number of key areas during the third quarter, was a welcome break for a company that had been battered in the market this year after a dismal first half. The shares rose as much as 10 percent Wednesday in New York, and were the top gainer in the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

If IBM achieves its sales outlook, it will end a 22-quarter streak of shrinking sales. During the third quarter, they came the closest to stemming that decline since the same period in 2016. Getting back to growth on the top line has been a major goal for CEO Ginny Rometty and a milestone investors are looking for as proof that the company can finally climb out of its rut.

But the mainframe business is cyclical, and analysts aren’t convinced that IBM can continue growing after server sales start tapering off. The company will need to show that its other categories, in particular its newer businesses including cloud software and services, can pick up the slack. At this point, declines in older operations still exceed the growth in newer ones. Analysts see positive signs in some of those areas, but are looking for sustained growth before saying IBM’s turnaround is successful.

Total revenue in the third quarter was $19.15 billion, a decrease of less than 1 percent from a year earlier, but higher than the analyst average estimate of $18.6 billion. Growth came from hardware, as well as the group that houses much of its software products.