IBM reduced its debt position to $61.4 billion at year end from a peak of $73 billion.
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IBM posted mixed results for the fourth quarter, with profits ahead of Street estimates but revenue coming in light amid continued pressures from a soft global economy.
For the quarter, IBM (ticker: IBM) reported revenue of $20.4 billion, down 6% (or 8% adjusted for currency and divested businesses) and below the Wall Street analyst consensus forecast of $20.6 billion. Non-GAAP profits were $2.07 a share, nicely ahead of the Street consensus view at $1.79 a share. On a GAAP basis, the company earned $1.41 a share, reflecting more than $2 billion in restructuring costs.
The stock was down 7% in after-hours trading Thursday.
The company said it expects full-year 2021 revenue to show positive growth compared with 2020. IBM projects full-year 2021 adjusted cash flow between $11 billion and $12 billion, up from $10.8 billion in 2020, and between $12 billion and $13 billion in 2022. IBM didn’t provide detailed full-year revenue or profit guidance, and as a matter of standard practice doesn’t provide quarterly guidance.
IBM also didn’t provide new details on the planned spinoff of its $19 billion managed-infrastructure services business, which is expected to be completed by the end of the year.
Chief Financial Officer Jim Kavanaugh said in an interview with Barron’s that revenue was a little below normal seasonality due to continued economic uncertainty, but that earnings per share came in above normal seasonality as the company cut costs and reduced debt.
Kavanaugh notes that the company reduced its debt position to $61.4 billion at year end from a peak of $73 billion following the completion of the Red Hat acquisition. He notes that IBM has $7 billion in debt maturing in 2021 and should bring the total down to the mid-$50 billion range by end of this year.
“We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients’ digital transformations while dealing with the broader uncertainty of the macro environment,” CEO Arvind Krishna said in a statement. “The actions we are taking to focus on hybrid cloud and AI will take hold, giving us confidence we can achieve revenue growth in 2021.”
IBM said it had total cloud revenue in the December quarter of $7.5 billion, up 10%, while Red Hat revenue was up 19%. GAAP gross margin was 51.7% while non-GAAP gross margin was 52.5%, both up 70 basis points from a year earlier. (A basis point in 1/100th of a percentage point.) IBM paid down $3.9 billion in debt in the latest quarter. The company isn’t currently repurchasing its own stock.
For the full year, total cloud revenue topped $25 billion, up 20%. Cloud is now 37% of IBM’s overall revenue. IBM says that only Amazon.com (AMZN) and Microsoft (MSFT) have higher reported cloud revenue than IBM.
IBM operates in five segments; here’s a breakdown of how they performed in the quarter.
- Cloud and cognitive software revenue was $6.8 billion, down 4.5%. That includes 9% growth in cloud and data platforms, led by Red Hat. Cognitive applications revenue was flat. Transactions-processing platform revenue was off 24%; cloud revenue was up 39%.
- Global business services revenue was $4.2 billion, down 2.7%.
- Global technology services revenue was $6.6 billion, down 5.5%.
- Systems revenue, including hardware and operating systems software, had $2.5 billion in revenue, down 17.8%, primarily reflecting lower hardware sales.
- Global financing revenue was $286 million, down 4.8%.
At the end of Thursday’s trading day, IBM stock was up 1.3%, to $131.80. The S&P 500 was up fractionally.
Write to Eric J. Savitz at [email protected]
