IBM posts double-digit cloud revenue growth; says customers deferring some projects

International Business Machines Corp edged past Wall Street estimates for quarterly revenue on Monday, bolstered by higher demand for its cloud services, a business it is staking its future on as it prepares to spin off one of its legacy units.

IBM shares, however, fell 3% after the company stayed away from issuing a forecast for the current quarter, citing uncertainty around a global economic recovery due to the COVID-19 pandemic.

“Clients’ near-term priorities continue to include operational stability, flexibility and cash preservation, which tends to favor (operating expenses) over (capital expenses),” Chief Financial Officer James Kavanaugh said.

“This is resulting in some project delays and purchase deferrals.”

Revenue from the cloud business, previously headed by Chief Executive Officer Arvind Krishna, rose 19% to $6 billion in the third quarter, offsetting weakness in much of its other businesses.

The boost from the cloud business further underscores IBM’s move to focus on its high-margin open hybrid cloud and AI solutions, which together account for more than half of its recurring revenue, by spinning off its IT infrastructure services unit.

“Clients continue to balance short-term challenges and opportunities for transformation ... More of my conversations with CEOs are around how they become digital businesses,” Krishna said on a post-earnings call.

IBM’s total revenue fell 2.6% to $17.56 billion in the reported quarter, but was slightly above analysts’ estimates of $17.54 billion, according to IBES data from Refinitiv.

Excluding the impact from currency and business divestitures, sales declined 3.1%.

The global technology services segment, IBM’s biggest unit that caters to some of the world’s largest data centers, reported a 4% drop in revenue to $6.5 billion.

Excluding items, the company earned $2.58 per share, which was in line with analysts’ estimates.