IBM profits dip 33% on flat sales

Net profit declined to $1.1bn in third quarter, about $568m less than same period last year

IBM earned revenue of $17.6 billion in the third quarter. Bloomberg

International Business Machines (IBM) reported a 33.5 per cent dip in third-quarter net profit as the company posted flat growth in sales in three months to September 30.

Net profit declined to $1.1 billion, about $568 million less than the same period a year ago. It dropped more than 15 per cent on a quarterly basis. The company earned revenue of $17.6bn in the quarter, only $58m more than the prior year period, missing analysts’ expectations of $17.7bn.

The earnings “fell short of our expectations”, the company’s chief executive and chairman Arvind Krishna told analysts on a conference call.

“We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities," Mr Krishna said. "With our increased focus and agility to better serve clients, we are confident in achieving our medium-term objectives of mid-single digit revenue growth and strong free cash flow generation."

IBM expects to spin out Kyndryl, the company’s global technology services unit that handles cloud infrastructure and technology support services, next month.

The company’s overall sales suffered after Kyndryl reported a decline in orders in the past.

IBM’s stock fell as much as 5 per cent in extended trading on Wednesday to $135.9 a share after the company issued its third quarter results.

Industry analysts said IBM was spinning off its slower-growth business so it could focus on the boom in demand for cloud services and increase competition with Amazon and Microsoft.

“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI [artificial intelligence] company,” Mr Krishna said.

IBM’s global technology services segment added about $6.2bn to the revenue in the third quarter. It was down by about 5 per cent on an annualised basis.

The cloud and cognitive software arm contributed $5.7bn to overall sales, almost 2.4 per cent more than the prior year period.

Global business services and systems, including hardware, businesses added $4.4bn and $1.1bn, respectively, to the overall revenue.

Global financing, which includes financing and used equipment sales, generated $220m, down 19.2 per cent annually.

In the third quarter, IBM generated a net cash worth of $2.7bn from operating activities, as its adjusted free cash flow stood at $1.2bn. The company also returned $1.5bn to the shareholders in dividends.

“We again had solid cash generation for the quarter and over the last year, while maintaining a strong balance sheet and the liquidity to support our hybrid cloud and AI strategy,” said James Kavanaugh, IBM’s senior vice president and chief financial officer.

“Our post-separation portfolio mix is shifted towards our growth vectors, with a higher-value recurring revenue stream and strong cash generation, allowing us to continue to invest in the business and provide attractive shareholder returns."

The New York-based company ended the third quarter with $8.4bn of cash in hand, including marketable securities.

Debt, including global financing debt of $15.9bn, totalled $54.5bn, down $7bn since the end of last year.

The company said it was increasing its research spending in areas such as quantum computing, machine learning, cloud computing and AI.