Cloud Business helps IBM’s Revenue edge Higher – Profit falls as company focuses on reviving growth

By guest author Maria Armental from the Wall Street Journal

International Business Machines Corp. posted higher revenue ahead of a landmark split of the business this year that is part of Chief Executive Arvind Krishna’s plan to revive growth at the veteran tech company.

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IBM IBM on Monday, April 19, 2021, said first quarter sales rose about 1 % to USD 17.73 billion, generating net income of USD 955 million. Wall Street on average expected sales of USD 17.32 billion and net income of USD 1.28 billion, according to FactSet.

IBM still expects revenue to grow this year and anticipates USD 11 billion to USD 12 billion in adjusted free cash flow for the year.

IBM shares rose more than 3 % in after-hours trading. The stock is up about 11 % in the past 12 months.

Mr. Krishna, in the top job a year, has pledged to restore growth at IBM this year after a prolonged period of stagnation. The company expects revenue to return to growth and projects about $11 billion to $12 billion in adjusted free cash flow for the year and $12 billion to $13 billion in 2022.

“While it’s still early in the year and a lot remains to be done, we are confident enough to say that we are on track,” Mr. Krishna said in a conference call with analysts, adding that customer spending patterns have strengthened.

“Strong performance this quarter in cloud, driven by increasing client adoption of our hybrid cloud platform, and growth in software and consulting enabled us to get off to a solid start for the year,” Mr. Krishna said in a statement, adding: “While we have more work to do, we are confident we can achieve full-year revenue growth and meet our adjusted free cash flow target in 2021.

The company is preparing to spin off a major part of its information-technology services operations.

Mr. Krishna said he would focus IBM on the booming field of cloud-computing and artificial intelligence. In the latest quarter, total cloud revenue rose about 21% to $6.5 billion.

IBM has undertaken a number of acquisitions to bolster both areas, including the purchase of software company Red Hat that closed in 2019, to strengthen its efforts in the so-called hybrid-cloud where customers mix on-site and cloud-based data storage and processing tools. IBM last week said it had agreed to buy for an undisclosed amount a small Italian company, called myInvenio, that it said would advance both its AI and hybrid cloud activities.

The company last week said that the services business it plans to spin off by the end of this year would be called Kyndryl and be based in New York City. It will be run by IBM veteran Martin Schroeter.

The IT services operations that IBM is partly shedding were central to former Chief Executive Lou Gerstner’s drive in the 1990s to transform the company from a lumbering tech giant focused on computing hardware to a huge player in services that were booming at the time. The spinoff announcement comes a few months after the Armonk, N.Y., company said it was eliminating an unspecified number of jobs.

IBM also is exploring the potential sales of Watson Health, The Wall Street Journal previously reported.

The unit, which employs artificial intelligence to help hospitals, insurers and drugmakers manage their data, was once a flagship initiative for Mr. Krishna’s predecessor, Ginni Rometty, isn’t currently profitable, people familiar with the matter have said.

Mr. Krishna, on the call, said its Watson product line, which goes beyond health, “remains critically important to us. To be absolutely clear, Watson is the brand product name for our AI capabilities.”