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IBM slips after third consecutive revenue decline

  • IBM (NYSE:IBM) reports Q3 results with revenue down 3% Y/Y to $17.56B, matching consensus estimates but marking the third straight quarter of revenue declines. IBM shares are down 1.1% AH.
  • Last week, IBM announced plans to spin off the managed infrastructure unit of the Global Technology Services business into a new company, allowing the legacy company to focus on the high-margin cloud business. The spinoff won’t finalize until the end of 2021, but it has already brightened the spotlight on IBM’s cloud performance.
  • "The strong performance of our cloud business, led by Red Hat, underscores the growing client adoption of our open hybrid cloud platform," says Arvind Krishna, IBM CEO. "Separating the managed infrastructure services business creates a market-leading standalone company and further sharpens our focus on IBM's open hybrid cloud platform and AI capabilities. This will accelerate our growth strategy and better position IBM to seize the $1 trillion hybrid cloud opportunity."
  • Q3 Cloud and Cognitive Software (Red Hat, cognitive applications, transaction processing platforms) sales were up 7% Y/Y to $5.6B compared to the $5.4B consensus. Red Hat alone was up 17%, flat with the Q2 growth.
  • Total cloud sales were up 19% to $6B (Q2 growth: 30%).
  • Global Technology Services (infrastructure and cloud services, tech support services) sales were down 4% Y/Y compared to the 8% decline in Q2, coming in at $6.46B versus the $6.33B consensus.
  • Rounding out the business, Global Business Services (consulting, application management, global processing services) sales totaled $3.97B (consensus: $3.93B) and Systems (systems hardware and OS software) totaled $1.26B (consensus: $1.46B).
  • Adjusted gross margin was 49%, above the 48.6% consensus and the 48% in Q2.
  • Cash from operating activities totaled $15.8B with FCF of $10.8B (TTM).
  • Debt totaled $65.4B, including $20.9B of Global Financing debt.
  • Earnings call starts at 5 PM with a webcast here.
  • Press release.
  • Related: IBM reports inline Q3 income and revenue

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