After a lackluster first half this year, International Business Machines (IBM) recovered and exhibited a stronger recovery in the third quarter, beating expectations from analysts, indicating a return to growth for the first time in over half a decade.
IBM has recently decided to shift to newer businesses, such as cloud and security services, and data analytics, to swerve away from the slowdown that plagued its legacy hardware and software businesses.
“Management is focused in the right areas, but still have some work and must demonstrate this growth is sustainable,” said John Olson, who is an analyst at Edward Jones.
Revenue from the aforementioned businesses rose up 11 percent to $8.8 billion in the third quarter, which ended on September 30. This accounted for 46 percent of the company’s total revenue. Dow component shares climbed almost 5.1 percent to $153.93 in extended trading on Tuesday.
Revenue from the cognitive solutions business, including the AI-powered supercomputer Watson, upped 4 percent to $4.40 billion, following a plummet of 2.5 percent in the preceding quarter.
Analysts have projected revenue of $4.17 billion, according to FactSet, which is financial data and analytics firm.
During the third quarter, the company stated that it was pouring $240 million worth of funds on an artificial intelligence lab together with the Massachusetts Institute of Technology. IBM also announced its collaboration across the blockchain technology with Dole, Kroger, Unilever, and Walmart.
IBM said it expects to swell $2.8 billion to $2.9 billion in the fourth quarter from the third quarter, and this suggests a range of $22 billion to $22.1 billion for its fourth quarter revenue on a year-on-year growth of around 1.4 percent at the high end.
The mainframe business, which received a good head start from the launch of Z14, is expected to be a substantial part of the expected rise in the revenue.
Revenue in the mainframe business rocketed 60 percent in the third quarter, according chief financial officer Martin Schroeter in an interview. He also added that IBM had some gains from Z14, which started shipping in mid-September.
“The progress around the mainframe contribution, signings growth/visibility in consulting positive trends in cloud likely sets up for further momentum in Q4,” said David Holt, who is an analyst with CFRA.
IBM’s overall revenue fell 0.4 percent to $19.15 billion, although it easily defied analysts’ estimates of $18.6 billion. The company’s net income settled at $2.73 billion, which equivalent to $2.92 per share, in the third quarter. This was a fall from last year’s $2.85 billion, or $2.98 per share. Not counting one-time items, the company gained $3.30 per share, which was higher than analysts’ estimates of $3.28.
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