Cloud growth fuels IBM’s profit beat

(Reuters) – International Business Machines Corp. beat analysts ‘ estimates for second-quarter earnings on Wednesday, propped up by returning to growth in the high-margin cloud business.

FILE PHOTO: A man stands in the vicinity of an IBM logo at the Mobile World Congress in Barcelona, Spain, February 25, 2019 at the latest. REUTERS/Sergio Perez/Photo File

The company is relying on the cloud business, in the face of slowing growth in its legacy businesses, including those on mainframes, and storage systems.

Last week it packed in its $34 billion takeover of Linux maker Red Hat Inc., the largest deal so far to expand the subscription-based software offerings.

The revenue from the cloud business, in the rapidly growing service is a key measure for the company, grew 5% to $4.8 billion during the quarter.

However, as a stronger dollar dragged down its revenue by about $500 million. IBM has more than 60% of its sales outside of the United States of america.

IBM’s Global Technology Services unit, its largest business, the revenue of which is provided with infrastructure, enterprise, cloud, and technology support services, has reported a 6.7% decline in revenue to $6.84 billion, missing analysts ‘ estimates of $6.92 billion, according to three analysts surveyed by Refinitiv IBES.

The control systems of the company’s business, including the mainframe, servers, and storage hardware fell by 19.5% to $1.75 billion.

Total revenue slipped 4.2% to $19.16 billion, in line with analysts’ estimates of $19.16 billion.

The drop in sales could be attributed to the weakness in the company’s legacy business of selling hardware, the company’s Chief Financial Officer, and James Kavanaugh, told Reuters.

IBM said it was on track to achieve adjusted earnings of $ 13.90 before 2019 at the latest, excluding the impact of Red Hat, which is in line with analysts ‘ expectations.

The company added that it will be an update in about 2019 at the latest, corrected earnings, including the impact of the Red Hat on Aug. 2.

The company’s net income rose to $2.50 billion, or $2.81 per diluted share, for the second quarter ended June 30, from $2.40 billion, or $2.61 per diluted share, a year earlier.

On an adjusted basis, the company earned $3.17 per share, beating estimates of $3.07.

Reporting Sayanti Chakraborty in Bengaluru; Editing by Anil D’silva

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