IBM Beats the Street in Earnings, Hints Growth May Be Back

A key part of the rise in revenue is expected to come from the mainframe business, which got a boost from the launch of Z14 during Q3.

IBM.Watson2

IBM issued a quarterly earnings report Oct. 17 that exceeded Wall Street analysts' estimates, and the results suggested that the venerable IT giant may be returning to revenue growth after five and half years of flat results and declines.

Big Blue, like several other legacy tech companies, has had to make the pivot away from selling and maintaining IT hardware to providing cloud services, cybersecurity, storage software, data analytics and other services. The strategy appears to be working, along with the fact that the company's mainframe business is also on the rebound.

Revenue from these businesses improved 11 percent to $8.8 billion in the third quarter ended Sept. 30, accounting for about 46 percent of the company's total Q3 2017 revenue, which amounted to $19.15 billion. That figure easily beat analysts' estimates of $18.60 billion.

The company's net income fell to $2.73 billion, or $2.92 per share, in the third quarter, from $2.85 billion, or $2.98 per share, a year earlier.

Revenue from the cognitive solutions business, which includes the AI-powered supercomputer Watson, rose nearly 4 percent to $4.40 billion, after falling 2.5 percent in the previous quarter.

IBM said it expected revenue to grow from $2.8 billion to $2.9 billion in fourth quarter from the third quarter. This implies fourth-quarter revenue will be in the range of $22 billion to $22.1 billion, a year-on-year growth of about 1.4 percent at the high end.

Investors were encouraged. Shares improved 5.1 percent to $153.93 in extended trading Oct. 17.

A key part of the rise in revenue is expected to come from the mainframe business, which got a boost from the launch of Z14 during Q3.

Revenue in mainframe business jumped 60 percent in the third quarter, adding that the business gained from Z14, which began shipping in mid-September.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he...