International Business Machines Corp (IBM) recently announced the plummeting value of its shares and unexpected decline in its revenue this quarter. The shares of IBM decreased sharply by 4.7%—or over $8—to touch a new low of $162 in after-hours trading (AHT) on April 19, 2017. The technology behemoth has already been struck by back-to-back decline in its revenue for five quarters now and its impressive quarterly earnings couldn’t offset the tumbling share prices. According to Thomson Reuters I/B/E/S, its earnings per shares (EPS) were $2.38 compared with the expectations of $2.35. As analysts opine, the turnaround may take time.
As revealed in the Motley Fool, a multimedia financial-services company, the company witnessed a more-than-expected decline in revenue—$18.16 billion, only a tad lower than the estimated $18.39 billion. The unlikely stumble in the share prices is largely attributed to its consulting segment losing ground; additionally, this was triggered by the huge losses in its other legacy businesses.
Strategic Imperatives Boosted Revenue Earnings but Are Prospects Buoyant Enough?
With the stagnating demand for its legacy hardware and software businesses, IBM has been increasingly shifting toward cloud-based services and security software and a host of lucrative avenues in big data analytics and artificial intelligence. Garnering a revenue of $3.5 billion in 2016, clocking a growth of 33% compared to last year’s figure, is encouraging. As Ginni Rometty, the CEO of Big Blue, optimistically states that these strategic imperatives alone accounted for over 40% of the total revenue in 2016. Though the soaring revenue from its cloud business may offer close competition to those of Amazon’s AWS and Microsoft’s Azure, the latter are growing at a faster pace.
Aiming for Gross Margins Key to Turnaround
Not strange to radical restructuring policies and makeovers, the technology giant, has upped its spending on research and development in the last quarter; the company spent $1.53 billion a little more than $1.46 billion spent a year ago. However, the spending still lags behind that by other stalwarts. The analysts are still skeptical of the restructuring spearheaded by Rometty two years ago. Market analysts contend that the spike in investment may hardly affect the year-on-year gross margins, which can be the key to boost growth and bringing the turnaround. Instead of relying on stock buybacks, IBM should aim for real revenue growth in order to gain strength among its investors, concludes analysts.