IBM Beats The Wall Street Forecasts

The season of big tech's quarterly earnings report is kicking off. The financial results of the quarter ended on June 30^th are ready to be shown to the investors, and International Business Machines Corporation IBM is here to start us off. The company should be proud of its services and its software, as both were the key to achieving better than expected second-quarter earnings.

IBM reported quarterly revenues of $18.75 billion and adjusted earnings per share of $2.33. In the first half of next week, we are expecting the results from Apple AAPL, Alphabet GOOG, and Microsoft MSFT, the mid-week is reserved for Facebook FB, followed by Amazon AMZN.

Second-Quarter Results

The tech giant's quarterly revenues of $18.75 billion are above the Wall Street estimate of $18.3 billion. Compared to the year before, and after adjusting for currency and divestitures, the revenues are about flat. Company's cloud and cognitive software business generated revenues of $6.1 billion, which is an increase of 6.1% (or 2.5% in constant currency).

This segment was also above the Wall Street forecast of $5.9 billion. The revenues from Global Business Services were up 11.6% (or 7.3% in constant currency), or $4.3 billion, while the estimate was $4.1 billion. Global Technological Services, IBM's IT outsourcing business, generated $6.3 billion, which is also above the Wall Street estimate, but down 4.1% (adjusted for currency). And finally, System revenues were down by 10.2% (in constant currency). All of this led to non-GAAP profits of $2.33 a share, 4 cents above the estimates. The gross profit margin reached 49.3%, which is an increase of 0.3pp.

Outlook

Jim Kavanaugh, IBM CFO, was satisfied with the fact the company reduced borrowings by $18 billion since its acquisition of Red Hat in 2019, and that the clients are adopting the hybrid cloud model, which integrates public and private could service with on-premises infrastructure. Therefore, the previous full-year adjusted cash flow forecast of $11-12 billion is still valid. As most markets are recovering from the pandemic, that is a favorable environment for IT spending, so the demand for investments into IT services and infrastructure is improving.

Maybe IBM was a bit late into the cloud game, but similar to Oracle ORCL, it might be a solid grower in the next couple of years. As the Department of Defense decided to reset Pentagon's $10 billion JEDI contract, that welcomed back players like IBM, offering hybrid cloud architecture, which offers extra network security to its customers.

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