IBM sales shrink as companies cut back on traditional IT

IBM’s revenue dropped 5.4 per cent in the second quarter as the coronavirus crisis led companies to cut spending on traditional applications and systems and shift a bigger slice of their IT budgets to the cloud.

The US technology supplier said it had seen some benefit from the swing in IT spending, with a 30 per cent jump in its own cloud revenue in the latest quarter, to $6.3bn from $4.8bn the year before.

But that increase — nearly $900m of it stemming from its $34bn acquisition of open source company Red Hat — was not enough to make up for a fall-off in areas like applications development, consulting and transaction processing.

Jim Kavanaugh, chief financial officer, said some parts of the company’s business, like consulting, had seen a recovery in June as Covid-19 cases declined.

Customer confidence “really is correlating with the curves of the pandemic”, he told the Financial Times. He would not comment on whether business had suffered as case numbers in the US turned up again in July.

The company said revenue in the three months to the end of June fell to $18.1bn from $19.2bn the year before. Stripping out the impact of acquisitions, business divestitures and foreign currency changes, reported revenue would have fallen between 6 and 7 per cent.

Net income was $1.36bn, down 46 per cent from the second quarter last year. Pro forma earnings per share fell to $2.18, from $3.17 a year ago.

However, the figures still topped most analysts’ downbeat estimates. Wall Street had been expecting revenue of $17.7bn and earnings per share of $2.07. IBM withdrew its financial guidance for the year after the first quarter.

IBM’s shares have fallen around 15 per cent since the coronavirus crisis struck. They were up 6 per cent in after-hours trading on Monday in the wake of the results announcement.

Revenue from Global Business Services — the IBM division that includes consulting and is heavily affected by cyclical pressures — fell 7 per cent to $3.9bn. Global Technology Services, which has suffered in the secular shift to cloud spending, dropped 8 per cent, to $6.3bn.