International Business Machines Corp. (NYSE:IBM) shares fell after reporting a worse-than-expected fall in second quarter revenue, reflecting declines in the business units that include its cloud computing and Watson artificial intelligence operations.
The tech giant posted a 4% drop in revenue to US$19.3bn in the three months to 30 June from US$20.2bn the same period a year ago, missing analysts’ estimates of US$19.5bn.
IBM’s shares fell 2.76% to US$149.75 in US pre-market trading and later lost 4.20% to go to $147.53 in New York.
IBM's Technology and Could Platforms business revenue slides
Revenue in the company’s Technology Services and Cloud Platforms business, its largest, fell 5.1% to US$8.41bn.
The Cognitive Business Solutions unit, which includes Watson services focused on the healthcare and finance markets, saw revenue slip 2.5% to US$4.6bn.
The Global Business Services division posted a 3.7% decrease in revenue to US$4.1bn and the Systems segment dropped 10.4% to US$1.7bn.
Total net income fell 8% to US$2.3bn while diluted earnings per share (EPS) from continuing operations edged down 4.9% to US$2.48. On an adjusted basis, excluding acquisitions, EPS was US$2.97, up 1% on the prior year.
IBM reiterated its guidance of at least US$13.80 in full year EPS, above market forecasts of US$13.68 per share.
IBM turns focus to high-margin areas
IBM has been shifting away from its traditional hardware and software businesses towards growing areas such as cloud computing, analytics and cyber security.
Revenue from these strategic initiatives rose 5% in the second quarter and 11% over the trailing 12 months, representing 43% of IBM revenue
"In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world's leading companies to the IBM Cloud," said Ginni Rometty, IBM chairman, president and chief executive officer.
"We continue to innovate, adding regtech capabilities to our portfolio of Watson offerings; developing solutions based on emerging technologies such as Blockchain; and reinventing the IBM mainframe by enabling clients to encrypt all data, all the time.”