IBM has successfully beat Wall Street revenue estimates, driven by high demands for its cloud services.
The tech heavyweight has staked its future on its cloud arm, as it prepares to spin off one of its legacy units to support the venture.
“The strong performance of our cloud business, led by Red Hat, underscores the growing client adoption of our open hybrid cloud platform,” said Arvind Krishna, CEO of IBM.
IBM’s total cloud revenue for their third quarter of 2020 was up 19% to US$6 billion, while their total cloud revenue was up 22% to US$24.4 billion over the last 12 months.
Mr. Krishna believes that separating the managed infrastructure services business into the spin off ‘creates a market-leading standalone company’ that further sharpens their focus on IBM’s open hybrid cloud platform and AI capabilities. IBM believes this will accelerate their growth strategy and better position them to seize the $1 trillion hybrid cloud opportunity.
“In the third quarter we continued to deliver strong gross profit margin expansion, generated solid free cash flow and maintained a sound capital structure with ample liquidity,” said James Kavanaugh, IBM Senior Vice President and CFO.
In Q3 2020, the company generated net cash from operating activities of US$4.3 billion, or US$1.9 billion excluding Global Financing receivables. IBM’s free cash flow was $1.1 billion and $15.8 billion of cash on hand, which is up $6.7 billion from year-end 2019.
“We have the necessary financial flexibility to increase our investments in hybrid cloud and AI technology innovation and skills, while remaining committed to our long-standing dividend policy,” said Mr. Kavanaugh.
Despite this success, IBM shares fell by 3% after the company did not issue 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]. This is resulting in some project delays and purchase deferrals,” said Mr. Kavanaugh.
IBM’s total revenue fell 2.6% to US$17.56 billion in Q3 220, but was slightly above analysts’ estimates of US$17.54 billion, according to IBES data from Refinitiv.
Excluding the impact from currency and business divestitures, sales declined 3.1%, while 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.