IBM International Business Machines Corp

By Asa Fitch 

International Business Machines Corp. reported a third-consecutive quarter of declining revenue Tuesday, further clouding Chief Executive Ginni Rometty's yearslong quest to revitalize the computing giant.

Under Ms. Rometty, who has been at the helm since 2012, IBM has poured resources into its cloud-computing business and new technologies such as artificial intelligence, aiming to reorient Big Blue in a world where traditional growth engines like equipment sales and services haven't been growing as fast as they once did. IBM said its cloud businesses grew 10% in the past 12 months.

For a brief spell last year, it appeared as though IBM had turned a corner, reporting successive quarters of overall revenue growth -- however small.

That changed in the middle of 2018, as Wall Street analysts and investors watched revenue tip back under. It fell again in the first quarter, dropping 4.7% to $18.18 billion. Analysts had expected $18.46 billion, according to Refinitiv.

IBM's software and technology services, which include computing infrastructure and IT support services, drove the decline. IBM had faced a tough comparison to last year's first quarter, when a new generation of industrial-strength mainframe computers helped drive sales.

Net income fell 5.2% to $1.59 billion. Adjusted profit, which excludes some items such as acquisition costs, came to $2.25 a share. Analysts had expected $2.22.

Despite the drop in net profit and revenue, IBM touted the growth in its cloud-computing revenue, which reached $19.5 billion for the past 12 months. Chief Financial Officer James Kavanagh also pointed to IBM's expanding margins as the company pursues faster-growing businesses that cost less to run.

While growth was flat or declined in all of IBM's main reported lines of business, the company bumped up its overall profit margin by a percentage point to 44.2%.

Once an icon of American ingenuity, IBM has struggled to compete in the modern computing era as the rise of cloud giants like Amazon.com Inc. and Alphabet Inc.'s Google have challenged an old model where big companies handled their critical computing needs largely in-house. IBM sees promise in the so-called hybrid cloud -- the idea that companies will increasingly use a combination of cloud services and their own equipment to accomplish those tasks -- and aims to grow that business.

IBM's cloud segment may not be growing as fast as some of Amazon or Microsoft's cloud services, Mr. Kavanagh said, but the company is keeping pace with its target for mid-teen growth in the hybrid cloud, a rate he said can allow it to take share in that arena.

Ms. Rometty is aiming to bolster IBM's hybrid-cloud strategy through IBM's acquisition of Red Hat Inc., an open-source software and services company that helps businesses streamline their computing strategies as they grow. That deal, valued at around $33 billion, is IBM's largest-ever acquisition and is expected to close in the second half of the year.

IBM's revenue had fallen virtually every quarter since Ms. Rometty took over, up until the last quarter of 2017, when it suddenly rose again. The company saw further revenue rises in the first half of last year, but that turnaround proved short-lived: Revenue declined again in the last two quarters of 2018.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

April 16, 2019 16:42 ET (20:42 GMT)

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