Key Takeaways from International Business Machines Corp. (IBM)’s Conference Call


It is a repeat of the earlier quarters’ scenario for International Business Machines Corp. (NYSE:IBM). The company saw its revenue sliding in the fourth quarter and offered muted outlook for the current year too. As a result, its stock slipped into the red. However, the market does not appear to have looked at some promising signs in their results like a increased focus on higher margin products. Also, despite the top line drop, it was able to increase its free cash flow to $13.1 billion (up $0.7 billion). Currency continues to make an unfavorable impact in the last few quarters. Let’s look at few key takeaways from the earnings conference call.

Growth In Service Deals

International Business Machines Corp. (NYSE:IBM) disclosed that it signed 26 services deals with a value of more than $100 million for the fourth quarter. For the full year, that brings the total to more than 70 deals representing 40% YOY growth. Significantly, the company indicated that it did not see any shrinkage of deals as its backlog was growing and 70% of the deals feature hybrid cloud content. That will reflect in the value of its clients get from hybrid. Also, it reflected that all their workloads would not be maximized for the cloud. The tech firm pointed out that it signed an expansion deal of $1.4 billion with European Bank, BNP Paribas. As part of the deal, it would manage two of its data centers offering cloud infrastructure apart from a complete business transformation services suite.

For the third straight quarter, Global Technology Services delivered 1% growth in revenue to $8.1 billion, i.e. excluding the currency impact. Including the unfavorable impact, it was down 7%. The company’s CFO, Martin Schroeter, said its hybrid cloud services in GTS witnessed strong double-digit growth for both the quarter, as well as, the full year. Its Softlayer also witnessed a strong demand to record double-digit growth. Total Cloud revenue was $10.2 billion for the full year and up 57 percent adjusting for currency and System x divesiture, 43 percent as reported

Strategic Imperatives 

Strategic imperatives revenue of $28.9 billion represents 35 percent of total revenue, up 26 percent adjusting for currency and the System x divestiture, 17 percent as reported. Beyond the strong performance in cloud this also included Business Analytics revenue rising 16 percent adjusting for currency and  7 percent as reported  to $17.9 billion, Mobile revenue more than tripling, and Security Revenue up 12 percent adjusting for currency, 5 percent as reported.

Global Business Services

International Business Machines Corp. (NYSE:IBM) said that the division was continuing its transformation. The company pointed out that its signings recorded double-digits in the fourth quarter fueled by its digital offerings.  However, its overall revenue continued to be unfavorably impacted by the closure of traditional enterprise app implementations. That was because clients were moving to digitizing their businesses from ERP.

As far as the current year is concerned, International Business Machines Corp. (NYSE:IBM) said that it would deliver strong growth in its tactical imperatives. The company indicated some modest gross margin expansion and would continue to invest at high levels. The company expects a minimum of one dollar unfavorable impact from the currency to hurt its earnings for the year 2016. As a result, it expects operating earnings to be $13.50 a share. The tech firm sees its free cash flow realization around the nineties.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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