International Business Machines Corp (IBM) recorded highest quarterly sales growth in more two years and beat Wall Street targets on Monday, boosted by its bets in the high-margin cloud computing business. Shares of the Dow component, which have gained nearly 6 percent so far this year, were up more than 3 percent in extended trading, according to Reuters.
Chief Executive Officer Arvind Krishna’s turnaround plan to focus on artificial intelligence and the cloud to revive growth after years of stagnation is starting to bear fruit, a report in Bloomberg said. The CEO reorganized tech giant around a hybrid-cloud strategy, which allows customers to store data in private servers and on multiple public clouds, including those of rivals Amazon.com Inc. and Micosoft Corporation, the report said.
Sales from its cloud computing services jumped 21 percent to $6.5 billion in the quarter. The 109-year-old firm is preparing to split itself into two public companies, with the namesake firm narrowing its focus on the so-called hybrid cloud, where it sees a $1 trillion market opportunity.
“Strong performance this quarter in cloud, driven by increasing client adoption of our hybrid cloud platform, and growth in software and consulting enabled us to get off to a solid start for the year," said Arvind Krishna, IBM chairman and chief executive officer, in a company statement. "While we have more work to do, we are confident we can achieve full-year revenue growth and meet our adjusted free cash flow target in 2021.”
Finance chief James Kavanaugh said cloud spending by clients in retail, manufacturing and travel industries in the United States was picking up after the initial pandemic-driven slump.
Big Blue recorded a sales decline in global technology services, its largest unit, but that was largely offset by a rise in revenue in the remaining three units, including a surprise growth in the business that hosts mainframe computers.
Mainframe saw strong traction from the financial services industry, where its banking clients shopped for more capacity as trading volumes soared during the retail trading frenzy, CFO Kavanaugh said.
"I am glad to see that strategic projects, which are IBM's bread and butter, are coming back," said Patrick Moorhead, analysts at Moor Insights & Strategy, adding that systems and global business services growth was a surprise. "This is a good start to the year for the company who is all-in on the cloud."
Total revenue rose nearly 1 percent to $17.73 billion in the quarter, beating analysts' average estimate of $17.35 billion, according to IBES data from Refinitiv. Net income fell to $955 million, or $1.06 per share, in the quarter ended March 31, from $1.18 billion, or $1.31 per share, a year earlier. Excluding items, the company earned $1.77 per share, beating market expectation of $1.63.
Krishna said he is “confident” IBM will deliver revenue growth in the second quarter and the rest of the year. “We will exit 2021 in a stronger position than we started,” he said on a conference call after the results were released, Bloomberg said.