Published: Thu, April 20, 2017
Business | By Cristina Jennings

Why IBM Stock Is Likely to Keep Singing the Blues

Why IBM Stock Is Likely to Keep Singing the Blues

How do you solve a problem like IBM?

For the first quarter of 2017, the United States computing giant reported its 20th quarterly loss in a row, and investors were not impressed.

Excluding outgoings, IBM earned $2.38 per share.

As a result shares plummeted in after hours trading and refused to gain ground over the course of the day dropping almost 5%, or over $8. IBM now has underperformed in the Dow Jones Industrial Average and in the S&P 500.

Shares in the technology firm have risen over 2% during 2017, but are still well short of the gains shown by several other blue chip stocks on the Dow Jones Industrial Average. The company's earnings beat analyst predictions of $2.35 per share, but its total revenue came in slightly below the prediction of $18.4 billion.

There are bright spots. Meanwhile, revenues at IBM's consulting arm fell 3% to $4 billion, although cloud-related consulting and services within that group grew in the "double digits", IBM said without providing additional details. Analysts put their consensus estimates around $13.78 per shares, and $78.66 billion in revenue, for 2017.

Revenue in the technology services and cloud platforms business dropped 2.5 per cent to $8.2 billion.

Furthermore, IBM has reiterated its guidance for the full year.

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IBM reported total revenue of $18.16 billion for the quarter, down 2.8 percent from $18.68 billion in the first quarter of 2016. In line with our expectations, IBM reported a marginal slowdown in business as the shift to cloud computing and currency headwinds continued to plague the company. It's a number that still lags behind the biggest tech companies. Still, headwinds in legacy areas remain a growth drag and are expected to be a burden as IBM strives to generate positive medium-term group revenue growth.

"Some of those levers are beginning to run out", Garcha said.

All of this comes as analysts are looking hard at the restructuring Rometty began two years ago. The company said gross profit margin fell in all five of its reporting units. On its earnings call, IBM promised gross margin would improve sequentially over the course of the year, as it tends to do with the help of seasonality, but didn't promise a return to annual growth.

IBM is at a very critical juncture at present. We believe the GM pressures could be secular in nature due to competitive and cannibalistic nature of the cloud business.

As I'd said, there are bright spots.

Moreover, IBM's strategy to move their business model towards the cloud and the cognitive solution seem to be working.

Big Blue has also revealed new cloud-based weather monitoring capabilities that it says can pinpoint and proactively respond to weather events by automatically alerting clients to worsening conditions in locations of interest.

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