International Business Machines Corp. missed analysts\u2019 quarterly revenue estimates, ending a short-lived streak of sales gains and casting doubt on its strategy to boost growth through new businesses like cloud and artificial intelligence.<\/p>\n
The shares slipped in extended trading.<\/p>\n
Revenue fell 2.1% to $18.8 billion in the third quarter, while analysts were expecting $19.1 billion. Cloud revenue, which has become a key metric to watch, grew 10% in the period to $4.5 billion.<\/p>\n
That was slower than the 20% expansion in the second quarter. Profit, excluding certain items, was $3.42, IBM said Tuesday in a statement, compared with the average projection of $3.40 a share, according to data compiled by Bloomberg.<\/p>\n
After six years of declining sales, the 107-year-old company showed gains in the past three quarters. Those were largely due to its legacy mainframes, the massive computers that help power global financial transactions and other complicated calculations for businesses and governments.<\/p>\n
A new sales cycle for those computers, launched about a year ago, is now winding down and the newer businesses IBM has been counting on to spur future, sustainable growth – known as \u201cstrategic imperatives\u201d – have expanded over the past three years, but have yet to fulfill their promise.<\/p>\n
The group includes IBM\u2019s Watson artificial intelligence program, security software and cloud computing.<\/p>\n
In the third quarter, revenue from strategic imperatives rose 13% for the past 12 months to $39.5 billion. That was a slower 12-month growth rate than the 15% reported in the previous quarter.<\/p>\n
IBM shares fell 4.7% to $138.25 in extended trading. They have declined 5.4% this year, compared with a 5.1% gain in the Standard & Poor\u2019s 500 Index.<\/p>\n
Jim Kavanaugh, IBM\u2019s chief financial officer, said in an interview that the deceleration in cloud and strategic imperatives revenue growth was because of IBM \u201cwrapping up our most successful mainframe product ever.\u201d<\/p>\n
Revenue in the Cognitive Solutions unit, which includes many Watson-related products, fell 6% in the third quarter, IBM said. Sales in the Global Business Services division rose 1%, while Technology Services & Cloud Platforms posted a revenue drop of 2%. The company\u2019s Systems unit saw sales gain 1%, and Global Financing revenue declined 9%.<\/p>\n
On a conference call following the report, Kavanaugh said that IBM \u201cfell short\u201d in third-quarter signings in services, but added that the business is expected to ramp up in the next quarter. \u201cWe\u2019ve got a chance to exit the year with a very strong position in our services base of business,\u201d he said.<\/p>\n
IBM is bolstering its appeal to customers by strengthening its AI arm, running 75 active blockchain networks and helping to protect banks from cyberattacks, Kavanaugh said, adding that more than 400 businesses have already embraced IBM\u2019s one-year-old secure Cloud Private program. IBM is \u201cfundamentally changing the way we operate this company,\u201d Kavanaugh said on the call.<\/p>\n
The real threat for IBM is that demand for its mainframe servers is rapidly fading into nonexistence as \u201ceveryone is migrating towards the cloud,\u201d said Ivan Feinseth, an analyst with Tigress Financial Partners LLC, before the results were announced.<\/p>\n
\u201cThey need their new key initiatives, such as the cloud and Watson AI development, to continue to ramp up,\u201d he said. \u201cThey are growing, but they are not moving the bigger needle and that\u2019s the issue.\u201d<\/p>\n
On Monday, IBM unveiled a new technology platform to help companies manage security, artificial intelligence and storage services across multiple cloud systems, regardless of where they were built. This is part of IBM\u2019s strategy to make cloud services more compatible with its competitors, rather than taking them head-on as it vies to catch up.<\/p>\n