Red hat performance shines amid bleak IBM results
UK blamed for fall in Global Technology Services revenue
IBM's integration of Red Hat is off to a "great start" according to its latest earnings results, providing one of the few rays of light in an otherwise dismal quarter.
The tech giant's gargantuan $34bn purchase of open source provider Red Hat concluded in Q3, and saw a 19 per cent rise in normalised revenue to $371m, compared to the nearly 14.8 per cent growth it had in its last quarter as an independent company.
IBM's overall revenue declined nearly four per cent year-on-year to $18bn, missing analyst expectations of $18.22bn. This marks the fifth consecutive quarter of revenue decline for the vendor.
Its Cloud and Cognitive Software segment, which houses Red Hat, was one of the few to see a jump in turnover, reporting $5.5bn for the period, up 6.4 per cent. Cloud revenue rose 11 per cent in the quarter to $5bn.
"I think this is an instantiation and validation of the power of bringing IBM and Red Hat together and how it is better for our clients and for our shareholders overall," CFO James Kavanaugh told investors on a call transcribed by Seeking Alpha.
UK stutters
The only other segment to report an increase in sales was its Global Business Services division, which saw a modest one per cent rise to $4.1bn, led by its consultancy services.
Global Technology Services, it's biggest segment, saw sales fall 5.6 per cent to $6.7bn, which Kavanaugh attributeed to lower-than-expected sales in certain markets, including the UK.
"When you take a look at what happened to us in the quarter, we did get impacted by lower client business based volumes that came out of predominantly two markets in Europe, those being the United Kingdom and Germany," he said.
"Europe overall was flat and pretty consistent with the second quarter overall.
"We're selling hardware, software-based platforms all over the world. So we're acknowledging shifts in buying behaviour. We're adapting our value propositions. Clients are still spending in those key high-value areas, and that's where we're placing all of our investment and capital allocation in our business."
IBM's Systems unit, which is comprised of system hardware and operating systems software, saw a sales drop off of nearly 15 per cent to $1.48bn.
Kavanaugh said this was due to the end-of-cycle for its z14 mainframe computer and the introduction of its successor in the last week of the third quarter.
CEO Ginni Rometty added that the success of the Red Hat acquisition positions IBM well in the hybrid cloud environment.
"In the third quarter, as we continued to help clients with their digital reinventions, we grew revenue in our Cloud and Cognitive Software segment and in Global Business Services," she said.
"Our results demonstrate that clients see IBM and Red Hat as a powerful combination and they trust us to provide them with the open hybrid cloud technology, innovation and industry expertise to help them shift their mission-critical workloads to the cloud."
However, despite the optimism from IBM execs, the missed revenue target caused its share price to tumble more than five per cent in after-hours trading.