Although overall revenues fell for mega-company International Business Machines Corp. (IBM) in the first quarter, their reported earnings surpassed Wall Street Expectations.
According to the Washington Post, the newly available mainframe computers IBM has been selling is responsible for the positive earnings report. Other new IBM technology such as analyzing data, social products and cloud based technologies only took in 27 per cent of overall revenue in the last twelve months. That percentage, without the mainframe sales, would have been disastrous for the more than century old IBM.
IBM’s CFO stated that this can be seen as a, “pretty strong start to the year.” However, other executives have consistently stressed that this will be what they term a transition year. With the old business plan eroding, the executives indicate that IBM will pivot towards other revenue sources.
Overall there was a 5 per cent decrease in net revenue, down to $2.4 billion. This brought the earnings for each share of IBM to $2.91 each, considerably more than agreement on Wall Street that the shares would come in at around $2.80.
Much of the decline in revenue can be explained by the current strength of the U.S. dollar and by the distancing of IBM from some of the companies old business practices. The majority of IBM’s revenue is generated outside of the United States, so a strong dollar in the USA is actually bad for IBM’s bottom line.
Maynard Um, a market analyst with Wells Fargo Securities LLC predicts that tough times are still ahead for businesses like IBM.
“IBM has taken the right steps to realign its portfolio,” sated Um but added, “the pressures from the declines in legacy businesses will remain higher over the near term.”