IBM revenue misses on weakness in legacy infrastructure unit
Revenue fell 4.8% to $6.15 billion in the third quarter
IBM on Wednesday missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders ahead of a spinoff next month, sending its shares down in extended trading.
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| IBM | INTERNATIONAL BUSINESS MACHINES CORP. | 227.41 | +0.49 | +0.22% |
The lower-margin, legacy unit provides technical support to IBM's clients and has shrunk in recent years as companies moved to the cloud, becoming a drag on Big Blue's earnings.
"As we issued the effective date for the spin-off of our managed infrastructure business, our clients paused all-new project activities at the end of September and that impacted us here," Chief Financial Officer James Kavanaugh said in an interview.
Feb 19, 2020 Foster City / CA / USA - IBM Corporation Innovation Center headquarters located in Silicon Valley; IBM Corporation is an American multinational information technology company
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Revenue at the global technology services unit, which houses the business set to be called Kyndryl after the spinoff, fell 4.8% to $6.15 billion in the third quarter ended Sept. 30.
Kavanaugh also said demand dropped at the systems business, home to IBM's mainframe computers, as the end of the product cycle neared, driving a 12% fall in the unit's revenue.
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The slowdown in the legacy business has prompted 110-year-old IBM to shift focus to hybrid-cloud, an area where it sees a $1 trillion market opportunity, to boost growth and better compete with Amazon.com Inc and Microsoft Corp.
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Revenue at the cloud and cognitive software unit was up 2.5% at $5.69 billion but missed analysts' estimates of $5.77 billion, according to Refinitiv data.
The weakness at IBM's "supposedly high-growth areas is more problematic" than the revenue miss, said Wedbush analyst Moshe Katri.
Total revenue rose slightly to $17.62 billion, missing expectations of $17.77 billion.
IBM will offer telecom operators Verizon and Telefonica new services ranging from running 5G over a cloud platform to using artificial intelligence, the U.S. technology company said on Monday, June 28, 2021. REUTERS/Rick Wilking/File Photo (Reuters Photos)
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But IBM's revenue adjusted for the Kyndryl spinoff was 2.5% higher, helped in part by firmer demand for its consulting services from enterprises digitizing their operations during the COVID-19 pandemic.
IBM earned $2.52 per share on an adjusted basis, compared with estimates of $2.50.