IBM’s revenues beats analysts’ estimate on heightened demand for cloud computing

International Business Machines Corp’s second quarter profits have beaten analysts’ estimates underscoring heightened demand in its cloud computing business with large companies accelerating their shift induced by the coronavirus crisis.

With the news reaching the market, shares of the company rose by 5% in after-hours trading.

IBM has jettisoned some of its legacy business to focus on the high-margin cloud computing business, an area that has seen a lot of action in recent years as companies ramp up their digital shift to boost efficiency.

“The trend we see in the market is clear. Clients want to modernize apps, move more workloads to the cloud and automate IT tasks,” said IBM’s new CEO Arvind Krishna during a post-earnings call with analysts.

Revenues from IBM’s cloud business, which was previously headed by Krishna, jumped by 30% to $6.3 billion during the second quarter.

In April 2020, Krishna took over the company’s reigns from Ginni Rometty.

IBM’s CFO James Kavanaugh said, the company’s global business services business was affected with clients cutting or delaying spending on discretionary projects because of the coronavirus. Sales in the unit fell by 7% to $3.9 billion.

During June, while Asia Pacific companies and those based in Western Europe saw a pickup in spending by clients, U.S. and Latin America customers pulled back as the pandemic impact got worse, said Kavanaugh.

“From a client perspective, our business is more concentrated in large enterprises, which in total have been relatively more stable throughout the pandemic,” said Kavanaugh.

According to IBES data from Refinitiv, although IBM’s total revenues have fallen by 5.4% to $18.12 billion, they however have been above analysts’ estimates of $17.72 billion. Excluding currency fluctuations and business divestitures, IBM’s revenues declined by 1.9%.

Excluding items, the company earned $2.18 per share, above estimates of $2.07.

Categories: Creativity, Entrepreneurship, HR & Organization, Strategy

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