IBM shares fall as analysts question the sustainability of software business recovery
Reuters, October 22 - IBM (IBM.N) shares fell 6.5% in pre-market trading on Thursday, after analysts pointed out that the rebound of the company's software business in the third quarter was partially driven by deals delayed from the previous quarter, raising doubts about whether the growth momentum can be sustained.
Details are as follows:
Analysts from Bank of America Global Research stated that about $250 million of IBM's software revenue growth this quarter came from deals postponed from the second quarter, and if these deals are excluded, the growth rate would be more moderate
IBM now expects (link) its annual software revenue growth rate to be raised from 6%-8% to about 7%-8%, but maintains its overall revenue growth outlook unchanged
The transaction processing division at IBM (which sells software related to mainframes) saw revenue grow 9% in the third quarter, but CEO Arvind Krishna said he does not expect this pace to continue and expects performance to “normalize, especially heading into next year”
Prior to this rebound, the division declined in the second quarter (link), and CFO James Kavanaugh at the time stated that weakness in IBM’s mainframe hardware and transaction processing software led its growth rate to drop by over five percentage points
Bernstein stated that IBM’s guidance suggests that as the boost from delayed deals fades, the division's sales in the fourth quarter will decline slightly
As of Wednesday’s close, the stock was down about 15% so far this year, including the largest single-day drop in over a century recorded in July—after CEO Arvind Krishna stated that IBM had “performed poorly” in adjusting (link) to changes in customer spending
If the current losses continue, IBM’s market value will evaporate by more than $15 billion
According to data compiled by London Stock Exchange Group (LSEG), at least eight brokerages have raised their price targets for the stock.
(For the convenience of non-native English speakers, Reuters automatically translates its reports into several other languages. As automated translation may be inaccurate or fail to capture required context, Reuters does not guarantee the accuracy of automated translation texts and provides them solely to facilitate readers. Reuters does not bear any responsibility for any damages or losses arising from the use of the automated translation feature.)
