IBM (NYSE:IBM) reported revenue down yr/yr and missed estimates for the sixth time in seven quarters. The company withdrew its outlook but maintained its dividend (5.4% yield), removing language about dividend growth.
The company faces uncertainty with its Consulting business. In software, IBM warned of a pause among clients amid changing priorities as the crisis played out in March.
On the positive side, the company is committed to more M&A. The new CEO was the architect behind the $30+ bln deal for open source leader Red Hat. The company needs to get more aggressive with deals to boost its growth. I think the company is in better hands under the new CEO. The company remains a work in progress but the valuation reflects this.
IBM's caution on the software side could weigh on stocks like Workday (WDAY), which could see some of its big deals slip. On the other hand, a more aggressive IBM from an M&A standpoint could eventually light a fire under SaaS stocks (now is not the time given uncertainty regarding COVID).
IBM (NYSE:IBM) promulgates itself as an integrated solutions and services company worldwide.
Its Cloud & Cognitive Software segment offers software for vertical and domain-specific solutions in health, financial services, and Internet of Things (IoT), weather, and security software and services application areas; and customer information control system and storage, and analytics and integration software solutions to support client mission critical on-premise workloads in banking, airline, and retail industries.
It also offers middleware and data platform software, including Red Hat, which enables the operation of clients' hybrid multi-cloud environments; and Cloud Paks, WebSphere distributed, and analytics platform software, such as DB2 distributed, information integration, and enterprise content management, as well as IoT, Blockchain and AI/Watson platforms.
The company's Global Business Services segment offers business consulting services; system integration, application management, maintenance, and support services for packaged software; finance, procurement, talent and engagement, and industry-specific business process outsourcing services; and IT infrastructure and platform services.
Its Global Technology Services segment provides project, managed, outsourcing, and cloud-delivered services for enterprise IT infrastructure environments; and IT infrastructure support services. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system, as well as Linux.
Its Global Financing segment provides lease, installment payment, loan financing, short-term working capital financing, and remanufacturing and remarketing services.
The stock has suffered a bit of late, with shares of IBM taking a hit in recent action, down about -6% over the past week.
Our IBM Earnings Summary:
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IBM beats by $0.04, reports revs in-line; withdraws FY20 guidance due to COVID-19
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Reports Q1 (Mar) earnings of $1.84 per share, $0.04 better than the S&P Capital IQ Consensus of $1.80; revs -3.3% yr/yr to $17.57 bln vs $17.62 bln Capital IQ consensus.
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Cloud & Cognitive Software up 5 percent (up 7 percent adjusting for currency)
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Systems up 3 percent (up 4 percent adjusting for currency)
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Global Business Services flat (up 1 percent adjusting for currency)
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IBM is withdrawing its full-year 2020 guidance in light of the current COVID-19 crisis. The company will reassess this position based on the clarity of the macroeconomic recovery at the end of the second quarter.
Our IBM Research and Conference Call Notes:
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On the call, CFO Jim Kavanaugh explained that results were tracking in-line through February. However, it saw a noticeable change in client priorities towards cash preservation in mid-March. There was effectively a pause, especially in IBM's software business, where the vast majority of transactions typically close in the last two weeks of the quarter.
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IBM withdrew its full-year 2020 guidance in light of the current COVID-19 crisis but said it's fully committed to its dividend. With a lofty 5.7% yield, that was good news for investors.
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BofA's W. Mohan said of the COVID-19 impact, "We currently model a larger relative impact in 2Q and 3Q and a modest recovery following that. Services likely to see a large impact Given the various restrictions around the Globe on travel, and other lockdowns, we expect a large hit to productivity metrics, especially in 2Q in both Global Technology Services (GTS) and Global Business Services (GBS). Given the higher transactional profile beyond 1Q, we expect a higher impact to revs and profitability in 2/3Q."