International Business Machines Corp reported a bigger-than-expected drop in revenue for the first time in five quarters due to weak demand in its technology services business, its biggest.Shares of IBM, whose revenue has now fallen for 20 quarters in a row, tumbled 4 percent to $163.15 in trading after the bell on Tuesday.The company said revenue declined 2.8 percent to $18.16 billion in the quarter ended March 31. Analysts on average were expecting $18.39 billion, according to Thomson Reuters I/B/E/S.
Revenue at IBM’s technology services and cloud platforms business, which provides IT infrastructure and cloud services, dropped 2.5 percent to $8.2 billion, or about 45 percent of total revenue.The decline in infrastructure services revenue “reflects productivity delivered to clients and contract dynamics,” IBM said in a presentation. With demand for IBM’s legacy hardware and software businesses stagnating, Chief Executive Ginni Rometty has been shifting the company towards “strategic imperatives” such as cloud-based services, security software and data analytics.
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The growth in these “strategic imperatives”, which are spread across the company’s five reporting units, continued, with revenue increasing 12 percent in the first quarter. Revenue growth was 11 percent in the fourth quarter. Revenue from “strategic imperatives” was $7.8 billion in the latest quarter, accounting for 42 percent of total revenue, compared with 37 percent last year.
IBM said gross profit margins fell in all five of its reporting units in the latest quarter, with total company-wide margins dropping to 42.8 percent from 46.5 percent.The company’s net income dropped to $1.75 billion, or $1.85 per share, from $2.01 billion, or $2.09 per share.Excluding items, IBM earned $2.38 per share, beating analysts’ average estimate of $2.35.
The company also said it expects adjusted earnings of at least $13.80 per share for fiscal 2017, reiterating a forecast it gave on Jan. 19.Since then, the average analyst estimate for earnings per share has risen from $13.74 to $13.78.Up to Tuesday’s close, IBM’s shares had risen about 2.5 percent in 2017, less than the roughly 4 percent rise in the Dow Jones Industrial Average.