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IBM tops expectations

Big Blue was wanted in screen-based trading ahead of the market open after releasing third quarter earnings last night
Mainframe room
The mainframe leviathan is attempting to adapt to the digital world

International Business Machines Corp (NYSE:IBM) topped expectations last night when it released third quarter earnings.

Net income of US$2.73bn was equivalent to US$2.92 a share, down from US$2.98 a share the year before but better than the US$2.84 the market had been expecting.

Revenue dipped to US$19.15bn from US$19.23bn the previous year but was comfortably ahead of Wall Street’s consensus forecast of US$18.61bn.

Revenue from what IBM calls its “strategic imperatives” businesses – Cloud, Security, Analytics, Social Business and MobileFirst – rose 11% year-on-year (or 10% on a currency-adjusted basis) to US$8.8bn.

"In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business," said Ginni Rometty, who is not only Big Blue’s chairman and president but also its chief executive officer.

"There was enthusiastic adoption of IBM's new z Systems mainframe, which delivers breakthrough security capabilities to our clients,” Rometty added.

The annual exit run rate for as-a-service revenue increased to US$9.4 billion from $7.5 billion in the third quarter of 2016.

The company left its full-year guidance on earnings per share and free cash flow unchanged.

Wedbush Securities maintained its neutral stance after what it said was a “mixed” set of quarterly results.

“On one hand, Q3/CY17 [third quarter of calendar year 2017] results exceeded expectations on strong performance in the company’s Strategic Imperatives segment (45% of sales); although improving Q-Q (driven by new hardware cycle), Y/Y margin trends in Services continue to deteriorate, reflecting pricing pressure from the company’s legacy solutions,” it said.

The bottom line, according to the broker, is that IBM remains in a “work-in-progress” mode, as it continues to convert its revenue base away from asset/labor intensive legacy products and services into asset/labor light “digital” solutions.

Wedbush has a price target of US$155 for IBM. Big Blue’s shares were up 4.9% at US$153.78 in pre-market trading.

IBM shot up in New York to stand at US$159.52 each - up 8.51%.

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