What’s happening: Shares of International Business Machines Corp headed south in extended trading on Monday despite the company reporting its third-quarter revenue above market expectations.
What happened: Earlier this month, IBM announced plans to spin off its legacy IT services unit to focus on its hybrid cloud business. This move by the world’s biggest computing company was well received by investors, sending its stock higher.
Investors were disappointed, however, by the company not issuing any forward guidance when it reported its third-quarter results.
How were the results: The 109 year old company reported a decline in sales and earnings for the third quarter.
Revenues declined to $17.6 billion, from $18.03 billion in the same quarter last year, but came in ahead of the consensus view of $17.54 billion.
Earnings stood at $2.3 billion, or $2.58 per share, down from $2.68 per share, in the year-ago quarter. The figure was in-line with expectations.
Why it matters: After reporting flat to declining sales for two years, IBM decided to spin off its IT outsourcing business as customers migrated to the cloud. Revenues at IBM’s Global Business Services unit, which includes its hardware and software business, declined 5% to $4 billion last quarter.
The company is looking to increase its focus on internet-based services and Artificial Intelligence business, with a boom in the demand for cloud services amid remote work trends. The splitting of the company will be completed in 2021.
IBM’s cloud revenues grew a healthy 19% to $6.0 billion during the third quarter, driven by Red Hat which was acquired by the company in 2018.
The company’s new CEO Arvind Krishna announced initiatives to save costs, including cutting thousands of jobs as clients reduced their investments and deferred software deals amid the pandemic.
“As we look forward, the case for hybrid cloud is clear,” Krishna said. “It’s a tremendous opportunity valued at $1 trillion with most of the enterprise opportunity ahead of us.”
IBM had pulled its guidance for the full year in April citing pandemic-induced uncertainty. The company refrained from announcing any guidance yesterday.
How shares responded: IBM’s shares plunged 3.1% to $121.75 in after-hours trading following the release of quarterly results. For the year, the stock is down 6% versus a 1% downturn in the Dow Jones index and a 28% rise in the Nasdaq 100.
What to watch: Investors will keep an eye on the revival of growth at IBM, following its decision to separate the IT infrastructure unit and focus on its cloud and AI business. Markets will also look out for news related to the company hiring for the new business and generating revenue growth.