International Business Machines Corp. reported higher than expected revenue in the fourth quarter, as its push into the hybrid cloud market starts to pay off.
The company's sales were $21.8 billion in the quarter, up almost 0.1% from the same period a year earlier, the Armonk, New York-based company said in a statement Tuesday.
The increase stemmed from IBM’s acquisition of Red Hat, which it completed in the third quarter last year, helping boost the cloud and cognitive software division 8.7% from a year earlier. Total cloud revenue was $6.8 billion.
Segment Results for Fourth Quarter
- Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat; Cognitive Applications; and Transaction Processing Platforms) — revenues of $7.2 billion, up 8.7 percent (up 9.4 percent adjusting for currency), led by cloud, Security, and IoT; Cloud & Data Platforms, up 19 percent (up 20 percent adjusting for currency); Cognitive Applications, up 1 percent; Transaction Processing Platforms, up 3 percent (up 4 percent adjusting for currency).
- Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $4.2 billion, down 0.6 percent (down 0.3 percent adjusting for currency), with growth in Consulting, up 4 percent.
- Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.9 billion, down 4.8 percent (down 4.0 percent adjusting for currency).
- Systems (includes Systems Hardware and Operating Systems Software) — revenues of $3.0 billion, up 16.0 percent (up 16.5 percent adjusting for currency), led by IBM Z, up 62 percent (up 63 percent adjusting for currency); Storage Systems revenue grew 3 percent.
- Global Financing (includes financing and used equipment sales) — revenues of $301 million, down 25.3 percent (down 24.9 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing.
“We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance," said Ginni Rometty, IBM chairman, president and chief executive officer. "Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise.”
“In 2019, we continued to invest in the higher-value growth areas of the industry and took bold actions — including several divestitures and a major acquisition — to position our business, which are reflected in our strong gross margin performance," said James Kavanaugh, IBM senior vice president and chief financial officer. "After completing the acquisition of Red Hat, and with strong free cash flow and disciplined financial management, we significantly deleveraged in the second half.”
IBM spent $34 billion in 2018 to acquire Red Hat to help kick this strategy into gear. The company plans to use Red Hat to offer enhanced security services and applications in the hybrid cloud.
IBM reported earnings excluding some costs of $4.71 a share.
IBM's full-year results reflect the impact of items related to the Red Hat acquisition closed in July 2019. Consolidated diluted earnings per share was $10.56 compared to $9.52 for 2018, up 11 percent year to year. Consolidated net income was $9.4 billion, up 8 percent year to year. Revenues for the full year totaled $77.1 billion, a decrease of 3.1 percent year to year (up 0.2 percent adjusting for divested businesses and currency) compared with $79.6 billion for the full-year 2018.
For 2020, the company expects GAAP diluted earnings per share of at least $10.57, and operating (non-GAAP) diluted earnings per share of at least $13.35. Operating (non-GAAP) diluted earnings per share excludes $2.78 per share of charges for: amortization of purchased intangible assets and other acquisition-related charges, including pre-closing charges, such as financing costs; retirement-related charges; and tax reform enactment impacts. IBM expects free cash flow of approximately $12.5 billion.