IBM Misses Sales Estimates, Casting Doubt on Growth Engines

IBM missed analysts’ quarterly revenue estimates, ending a short-lived streak of sales gains, according to Bloomberg.

Revenue fell 2.1 percent to $18.8 billion in the third quarter, while analysts were expecting $19.1 billion. Cloud revenue, which has become a key metric to watch, grew 10 percent in the period to $4.5 billion. That was slower than the 20 percent expansion in the second quarter. Profit, excluding certain items, was $3.42, IBM said in a statement.

Revenue in the Cognitive Solutions unit, which includes many Watson-related products, fell 6 percent in the third quarter, IBM said. Sales in the Global Business Services division rose 1 percent, while Technology Services & Cloud Platforms posted a revenue drop of 2 percent. The company’s Systems unit saw sales gain 1 percent, and Global Financing revenue declined 9 percent.

After six years of declining sales, the 107-year-old company showed gains in the past three quarters. Those were largely due to its legacy mainframes, the massive computers that help power global financial transactions and other complicated calculations for businesses and governments.

A new sales cycle for those computers, launched about a year ago, is now winding down and the newer businesses IBM has been counting on to spur future, sustainable growth, known as “strategic imperatives“, have expanded over the past three years, but have yet to fulfill their promise. The group includes IBM’s Watson artificial intelligence program, security software and cloud computing.

In the third quarter, revenue from strategic imperatives rose 13 percent for the past 12 months to $39.5 billion. That was a slower 12-month growth rate than the 15 percent reported in the previous quarter.

On a conference call following the report, Kavanaugh said that IBM "fell short" in third-quarter signings in services, but added that the business is expected to ramp up in the next quarter. "We’ve got a chance to exit the year with a very strong position in our services base of business," he said.