Picture: REUTERS
Picture: REUTERS

Bengaluru — IBM’s shift to newer businesses such as cloud and security services helped it beat analysts’ quarterly revenue estimates, and the technology major hinted at sales growth after nearly six years of declines.

Shares of the Dow component rose nearly 5.1% to $153.93 in extended trading on Tuesday.

IBM has focused on cloud, cybersecurity and data analytics, or what the company calls its "strategic imperatives", to counter a slowdown in its legacy hardware and software businesses.

Revenue from these businesses climbed 11% to $8.8bn in the third quarter to end-September, accounting for about 46% of the company’s total revenue.

"Management is focused in the right areas, but still have some work and must demonstrate this growth is sustainable," said Josh Olson, an analyst at Edward Jones.

Revenue from the cognitive solutions business, which includes the artificial intelligence (AI)-powered supercomputer Watson, rose nearly 4% to $4.40bn, after falling 2.5% in the previous quarter.

Analysts on average expected revenue of $4.17bn, according to financial data and analytics firm FactSet.

IBM said it expected revenue to grow $2.8bn to $2.9bn in fourth quarter from the third quarter.

This implies fourth-quarter revenue in the range of $22bn-$22.1bn, a year-on-year growth of about 1.4% at the high end.

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

Revenue in mainframe business jumped 60% in the third quarter, chief financial officer Martin Schroeter told Reuters, adding that the business gained from Z14, which began shipping in mid-September.

"The progress around the mainframe contribution, signings growth/visibility in consulting and positive trends in cloud likely sets up for further momentum in [the fourth quarter]," said David Holt, an analyst with CFRA.

IBM backed its forecast for 2017 adjusted earnings of at least $13.80 per share. Analysts on average are expecting earnings of $13.75 per share, according to Thomson Reuters I/B/E/S.

Total revenue fell 0.4% to $19.15bn, but handily beat analysts’ estimates of $18.60bn.

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

Excluding one-time items, IBM earned $3.30 per share, beating analysts’ estimates of $3.28.

Reuters

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