International Business Machines Corp.’s (IBM.N) push into cloud software is slowing down.
Revenue from cloud-based offerings grew about 12 per cent to US$19.2 billion in 2018, barely half the growth rate of 2017. Total sales declined 3 per cent in the fourth quarter to US$21.8 billion and while that was better than analysts expected, it was the worst drop since the second quarter of 2017. Earnings were US$4.87 a share in the fourth quarter, also beating analysts’ forecasts.
The shares rose about 4 per cent in extended trading. They are down almost 25 per cent in the past 12 months and closed at US$122.52 in New York Tuesday.
IBM has been touting its cloud business for several years as the company works to transition the main sources of revenue from consulting and hardware to newer technologies such as artificial intelligence and security software. IBM agreed to buy software maker Red Hat Inc. for US$33 billion in October in a bet to jump-start its efforts to catch up in the cloud. Chief Executive Officer Ginni Rometty called the purchase a “game changer” for IBM.
After six years of revenue declines, IBM showed two consecutive quarters of growth in the first half of 2018. Those were largely due to its legacy mainframes, however, the massive computers that help power global financial transactions and other complicated calculations for businesses and governments. And in the third quarter, sales gains slipped again by 2 per cent.
Margins grew slightly in the fourth quarter, to 49.1 per cent, but missed the average analyst estimate. IBM forecast 2019 operating earnings will be at least US$13.90 a share.
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