Thread regarding IBM layoffs

IBM Earnings Fall in Prolonged Sales Slump

As goes revenue, so goes headcount: (3.9%) YTY so we should expect the commensurate amount of headcount reduction, but undoubtedly Ginni will just make it a nice round 5% as the math is easier for the bean counters to calculate.

By: Asa Fitch
Updated Oct. 16, 2019 5:55 pm ET

International Business Machines Corp. IBM -0.62% reported a fifth sequential quarter of falling sales, with the company’s legacy information-technology business holding back Chief Executive Ginni Rometty’s efforts to revive growth through the $34 billion acquisition of software giant Red Hat.

IBM on Wednesday reported sales of $18.03 billion, below analysts expectations and trailing the $18.76 billion it posted in the year-prior period. Shares slumped 6% in after-hours trading.

The revenue decline was IBM’s 27th overall under Ms. Rometty, who has struggled to adapt the more than century-old company to a changing global IT landscape since taking the reins in 2012.

The company’s closely watched adjusted earnings per share fell to $2.68, but came in slightly higher than analysts’ forecasts of $2.66.

Ms. Rometty, for years, has been trying to reinvent IBM, with bets on areas such as health-care technology and artificial intelligence. Cloud computing, a model where customers rent computing power instead of buying their own machines, is another cornerstone of Ms. Rometty’s bid to revive IBM’s fortunes.

While Big Blue was an early pioneer of cloud-computing services, it fell behind rivals such as Inc. and Microsoft Corp. IBM is the fifth largest cloud-computing company by sales, according to research firm Gartner Inc., with a 1.8% market share last year. The Red Hat deal that closed this year aims to propel IBM to a top player in the cloud.

Revenue in the company’s cloud businesses rose 11% in the third quarter to $5.0 billion, IBM said.

“Our results demonstrate that clients see IBM and Red Hat as a powerful combination,” Ms. Rometty said. IBM’s cloud growth rate still trails the increases Amazon and Microsoft have been reporting.

The company said Red Hat’s revenue increased 19% in the last quarter, the first since the deal’s close. But accounting rules limited the portion of those sales IBM was able to include in its quarterly results. IBM reported all of Red Hat’s expenses, which hurt profit.

With Red Hat, IBM hopes to gain a dominant role in what it terms “the hybrid cloud.” The company is betting that many business haven’t yet migrated their data to the cloud and that many will choose a so called hybrid model, which IBM has focused on, where data storage relies on a mix of in-house and rented computers. Red Hat sells support and training for software that aims to work seamlessly in the cloud and on-site, which IBM sees as a critical in a hybrid-cloud world.

As IBM pushes ahead with its cloud focus, it has been trying to reorient its traditional technology-services division by shedding lower-margin parts of that business, leading to lower sales. Revenue in that segment, which sells outsourced IT to companies, fell 5.7% in the third quarter to $6.70 billion, leading to the overall sales retreat.

IBM’s revenue from selling mainframes—huge computers that process transactions and manage company data and a traditional earnings mainstay for the company—also fell in the quarter. Sales of mainframes rose after IBM introduced its newest generation of them in 2017, but have fallen off in recent quarters. The company in September unveiled a new version of its mainframes, but they aren’t expected to affect financial results in a significant way until the current quarter.

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Post ID: @OP+11zesPJl

11 replies (most recent on top)

IBM Cloud has had tons of recent layoffs too so I would not want to be associated with it.

Post ID: @1wki+11zesPJl

5% -10% cut coming. Anyone hearing Abdallah hands meeting ? We missed September layoffs because of Red Hat but the cat is out of the bag now. Good luck.

Post ID: @1agb+11zesPJl

@11zesPJl-1djl "Strategy after July was Redhat or substitute “cloud” if you like. If you are not associated with cloud, expect to be downsized"

Good thing that everything IBM does has now been relabeled as cloud. Ctrl+H Find and Replace "Watson" with "Cloud". Done.

Post ID: @1qmf+11zesPJl

For how long can Redhat bailout legacy IBM ?

Post ID: @1hfp+11zesPJl

I would expect IBM to accelerate the Redhat strategy now that 3rd q earnings are in the books. The CFO essentially said the same thing (Eg we will manage services for profit). Strategy before July was “strategic initiatives”. Strategy after July was Redhat or substitute “cloud” if you like. If you are not associated with cloud, expect to be downsized

Post ID: @1djl+11zesPJl

With all the layoffs is it surprising that the results without the Red Hat acquisition would be lower? There are less people making and selling software and many that are have very little experience.

Post ID: @1lpc+11zesPJl

Red hat revenue accounted for close to $400M in IBM reported results, which means that without these IBM revenue would have dropped $1.1B versus last year, ie 6% drop !

Post ID: @1jhu+11zesPJl

All hope for "totally not a mainframe company, we're a cloud and AI company" IBM for Q4 now rests on a revenue pop from the new Z series.

Post ID: @zmd+11zesPJl

IBM's cloud and cognitive software unit, the division in which it placed Red Hat, saw revenues rise 6.4% to $5.28 billion, while IBM's IBM's cloud services revenues rose 11% to $5 billion. Global technology services, IBM's biggest division, saw revenues fall 5.6% to $6.7 billion.

"In the third quarter, the in-quarter revenue did not come in as expected we had lower customer business volumes in certain markets and some multi-national clients versus our expectations. And this impacted the growth rate by an additional point," CFO James Kavanaugh told investors on a conference call late Wednesday. "Because this work leverages existing resources, it has a higher margin profile. And so these lower volumes impacted our gross margin, which was down about a point from the prior year."

THAT ladies and Gentleman is the fat lady singing. We placed all of our chips on Redhat, and black came up. They had a year to be ready for Redhat, and they under performed. What can we expect going forward.
GTS you will get cut deeply. As they said in other posts as goes revenue so goes head count
Power. Down 25%. Expect a headcount cut
GBS. You were stable even though they goosed you with Redhat. Expect legacy to get cut
Cognitive. You actually quasi grew so get a pass
NOTE Ginni’s big bet has failed. This quarter after 12 months of planning should have exploded. Where does IBM go from here? Most likely the breakup bone yard It’s the only place where value resides

Post ID: @tsy+11zesPJl

GAAP earnings were over $1 less per share less than the previous three years for the same quarter. But non-GAAP still beat subdued estimates by one cent. How do you do that? Negative tax rate, 66 cents per share in acquisition allocation and 14 cents per share for retirement expense reduction in the GAAP to non-GAAP mapping.

Gross Profits were solid - just ignore that SG&A was way, way up on less revenue from 2018.

Post ID: @ldi+11zesPJl

"The company said Red Hat’s revenue increased 19% in the last quarter, the first since the deal’s close. But accounting rules limited the portion of those sales IBM was able to include in its quarterly results."

I'm not an accountant but my understanding is that pre-IBM Red Hat used to report annual subscription revenue up front rather than over the subscription period. Nevertheless, SOME Red Hat revenue was included in this quarter's result and the total is STILL 4% less than this quarter last year. Imagine the results without the Red Hat acquisition.

Post ID: @vnn+11zesPJl

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