IBM returns to growth after six years, but dour forecast hits shares

IBM -4.4% despite beating Q4 estimates, posting first revenue growth in nearly 6 years

The extra few hundred million dollars of mainframe revenue will be the main driver of IBM's fourth-quarter growth, assuming the company doesn't fall short of expectations. This should "drive the stock in 2018 and beyond", wagers Ives, seeing a huge "opportunity" for IBM to make waves as a market leader in AI, big data, and predictive analytics.

"Tax will be a headwind in 2018", IBM veteran and new Chief Financial Officer James Kavanaugh said on a conference call.

"During 2017, we strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business".

Wall Street was looking for fourth quarter non-GAAP earnings of $5.17 a share on revenue of $22.06 billion. Annual revenue for 2017 was $79.14 billion. IBM's as-a-service run rate for the year rose to $10.3 billion from $8.6 billion at the end of 2016. Revenues from mobile increased 23 percent (up 21 percent adjusting for currency) and revenues from security increased 132 percent (up 127 percent adjusting for currency). The company also posted $5.8 billion in net income for 2017, representing a 51 percent drop from $11.9 billion in 2016. IBM returned $1.4 billion in dividends and $0.7 billion of gross share repurchases to shareholders. Revenue from its systems division, which includes mainframes, rose 32 percent to $3.3 billion. Debt totaled $46.8 billion, including Global Financing debt of $31.4 billion.

UBS analyst Steve Milunovich reacted to the IBM earnings report by saying he was feeling worse near term but "somewhat better long term". The litmus test of success will be when those new units grow large enough to more than offset the steady erosion of its traditional hardware and software products, delivering revenue growth consistently.

Within Big Blue's strategic imperatives, analytics and cloud had the highest Q4 revenues, coming in at $6.1 billion and $5.5 billion, respectively.


In the fourth quarter, IBM acquired consulting agency Vivant Digital, settled a patent lawsuit with Priceline and said Daimler AG, JPMorgan Chase and Samsung are collaborating with the company on quantum computing technology.

The company forecast stable margins and revenue growth for 2018, buoyed by growth in its newer businesses such as cloud computing and security services.

The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a one-time charge of $5.5 billion in the fourth quarter.

IBM took a one-off charge of more than $5.5 billion due to the recent tax reform law signed in the U.S. The charge includes several elements that include a tax on its overseas profits that have accumulated and that revaluation of its deferred assets and liabilities, said the company in a prepared statement.

IBM's shares fell 2.7 per cent in extended trading on Thursday.

Like other large worldwide corporations, IBM has kept some of its global profits off its domestic books to avoid the previous 35 percent federal corporate tax rate.

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