https://www.wsj.com/articles/ibm-first-quarter-sales-decline-as-new-ceo-aims-to-revive-growth-11587415010
By: Asa Fitch Updated April 20, 2020 6:44 pm ET
International Business Machines Corp. {IBM 0.24%} posted lower first-quarter sales, withdrew annual earnings guidance because of uncertainty caused by the coronavirus pandemic and took a large restructuring charge, highlighting the challenges new Chief Executive Arvind Krishna faces in trying to revive Big Blue’s fortunes.
IBM on Monday said it was withdrawing full-year earnings guidance that included generating at least $13.35 in adjusted earnings per share, citing the Covid-19 crisis. The company said it would reassess the situation at the end of the current quarter.
“It was a tough decision to withdraw guidance,” Mr. Krishna told analysts. “But these are unprecedented times, and this quarter is not the time to declare we have clarity—that does not benefit us, and it does not benefit you as investors and analysts.”
The Armonk, N.Y.-based company also said earnings per share fell 18% on an adjusted basis to $1.84. Sales over the first three months amounted to $17.57 billion, down 3.4% from $18.18 billion in the same period last year, in part dented by currency movements.
IBM shares fell 1.3% in after-hours trading.
The results come as IBM is trying to focus increasingly on the booming cloud-computing field while shedding more traditional but less-profitable parts of a global business spanning IT services, consulting and hardware. It is a move that began under Ginni Rometty, who ran IBM for more than eight years, before Mr. Krishna took over as CEO on April 6.
IBM’s adjusted earnings per share for the quarter exceeded Wall Street forecasts that had been revised downward in recent months. Analysts surveyed by FactSet anticipated $1.81 in adjusted earnings per share. IBM’s sales were roughly in line with Wall Street expectations.
IBM also took a $900 million charge against earnings, largely to cover restructuring costs linked to its Global Technology Services division, which offers IT outsourcing. IBM in January signaled it was planning changes at the unit to bolster its competitiveness.
The charge for GTS was more than offset by a one-time tax benefit, the company said.
IBM is one of the first large tech companies to report quarterly results since the coronavirus outbreak led to stay-at-home orders across the U.S. Tech companies, though not immune from the impact of the economic effects of the pandemic, are broadly expected to weather the downturn better than many other businesses, aided by Americans flocking to online services.
IBM, like many other large corporations, has asked almost all of its employees to work remotely during the crisis. IBM executives recently urged some employees to take a week of vacation during the current quarter to avoid a shortage of staff later in the year once companies ramp up as shutdown orders end, according to a group that tracks IBM layoffs and posted the memos online.
IBM declined to comment on the request to employees.
Mr. Krishna takes over an IBM that faces the twin challenges of coping with the pandemic and reorienting a company that has suffered through several years of declining revenue and an anemic share price.
IBM has been eager to capture more revenue from cloud-computing, where businesses rent remote computing power instead of buying their own machines. IBM was slow off the mark, allowing rivals such as Amazon.com Inc. and Microsoft Corp. to take a big market-share lead in recent years. But cloud computing is also a market other tech companies are piling into. China’s Alibaba Group Holding on Monday said it planned to invest 200 billion yuan ($28.28 billion) within the next three years in cloud infrastructure.
Mr. Krishna, before becoming IBM’s CEO, ran its cloud-computing unit. To help spur growth, IBM last year closed the roughly $33 billion acquisition of open-source software giant Red Hat, the biggest deal in its history. IBM also named as new president former Red Hat boss Jim Whitehurst, effectively making him the No. 2 to Mr. Krishna.
IBM is betting that its global scale combined with Red Hat’s experience offering applications that span both the cloud-computing world and companies’ on-site machines will help snare business as companies embrace a mix of in-house and rented computing capacity. Red Hat sales rose 18% in the quarter.
Mr. Krishna said that “what we are going through today, with the shift to remote work, automation, application modernization, will accelerate our client shift to hybrid cloud.”
IBM on Monday said its cloud and cognitive software sales rose 5% in the first quarter, a point of strength in an otherwise muted set of results. Overall, revenue from cloud computing, which cuts across numerous divisions, was up 19%, IBM said, reaching $5.4 billion.
Revenue for its Systems unit that has been selling a new generation of powerful mainframe computers rose 3%. But sales in Global Business Services were flat, and fell in the GTS and Global Financing segments. GTS sales, which have been declining, fell 6% year-over-year to $6.47 billion.
IBM said it had $12 billion cash on hand at a time investors are focused on balance-sheet health because of the bleak economic outlook. IBM reported more than $52 billion of long-term debt on its balance sheet, accumulated in large part to pay for the Red Hat deal.
Sanford C. Bernstein analyst Toni Sacconaghi said before the results that the company should have little trouble refinancing some $7.5 billion of debt that comes due this year.
Mr. Krishna said IBM was ready to make acquisitions to underpin its shift to cloud computing and emphasis on artificial intelligence, while also ready to divest parts of its business that don’t line up with that focus.