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IBM is “confident” that it can achieve year-round revenue growth, said CEO Arvind Krishna.
Ethan Miller / Getty Images
IBM
posted better-than-expected financial results in the first quarter and reiterated its forecast that revenues in 2021 will increase by 2020.
IBM shares (ticker: IBM) rose 4.5% to $ 138.92 in after-hours trading.
For that quarter, the corporate computing giant posted revenue of $ 17.7 billion, up 1% but down 2% in constant currency, and ahead of the street to $ 17.3 billion. Non-GAAP earnings were $ 1.77 per share, ahead of the consensual street forecast of $ 1.63 per share. This compares to $ 17.6 billion in revenue and a non-GAAP profit of $ 1.84 per share in the quarter last year. Based on GAAP, the company earned $ 1.06 per share, down from $ 1.31 per share a year ago.
“The strong performance this quarter in the cloud, driven by the growing adoption of our hybrid cloud platform, and the growth of software and consulting have allowed us to start a solid year,” said CEO Arvind Krishna in a statement. “Although we have more work to do, we are confident that we can achieve year-round revenue growth and meet our adjusted free cash flow target in 2021.”
The company said revenue from its cloud and cognitive software segment was $ 5.4 billion, up 3.8% or 0.8%, depending on the currency. Revenue from the Global Business Services segment was $ 4.2 billion, up 2.4% but down 1.4% based on currency.
Revenues from global technology services were $ 6.4 billion, down 1.5% or 5.3% adjusted for currency. Revenues from systems, which include hardware, were $ 1.4 billion, up 4.3% or 2.2% depending on the adjusted currency. Global funding revenues were $ 240 million, down 20% or 21.9% adjusted for currency.
Total revenue in the cloud was $ 6.5 billion, up 21% or 18% adjusted for currency and divested companies. Red Hat revenues increased by 17% or 15% adjusted for currency.
Gross margin in the first quarter was 47.3% on a non-GAAP basis, up 110 basis points or 46.3% on a GAAP basis, up 120 basis points.
IBM said it paid off $ 5.1 billion in debt by the end of 2020, reducing the total debt to $ 56.4 billion. IBM has paid $ 16.6 billion in debt since the closing of the Red Hat acquisition in 2019.
IBM repeated its previous forecast for the full year 2021, the free cash flow adjusted from $ 11 billion to $ 12 billion, with revenue ahead of 2020 levels. The company continues to expect sustainable growth of an average figure, once will complete the pending rotation of Kyndryl, its managed services business. The company has not provided any new details on the rotation, but continues to expect the transaction to be completed by the end of 2021.
Chief Financial Officer James Kavanaugh remarked in an interview Barron’s Revenues for that quarter were about $ 400 million higher than street expectations, with a large force in hardware, software and services. He pointed out that the company’s cloud business revenue was $ 26 billion over the past 12 months, and now accounts for more than a third of IBM’s business.
Kavanaugh said IBM expects to file a Form 10 when it is filed with the Securities and Exchange Commission in mid-summer through late summer, detailing income statements and post-spin balance sheets on a pro forma basis for both Kyndryl and “Leftco”. He expects the first quarter of earnings for Kyndryl as an independent company in the first quarter of 2022. He said he expects Kyndryl to target an investment rating with an “attractive” dividend and a free cash flow return.
Asked about the tone of business, given the expectations that companies’ IT spending recovery will have, Kavanaugh said that “in general we are encouraged by the trends we see from a macroeconomic perspective”, although he noted that “trends do not they are homogeneous all over the world ”. He said there is a correlation between the pandemic curves in different markets and customers’ buying behavior. “We are cautiously optimistic,” he said.
Write to Eric J. Savitz at [email protected]