IBM Reports Falling Revenue and Withdraws Forecast on Virus Woes

(Bloomberg) -- International Business Machines Corp. reported a drop in first-quarter revenue and pulled its profit forecast for the year, signaling that the Covid-19 pandemic has become another hurdle for the company in its transition to cloud computing.

Sales declined 3.4% to $17.6 billion in the period that ended March 31, the Armonk, New York-based company said Monday in a statement. Analysts, who recently updated their projections to adjust for the pandemic, expected revenue of $17.7 billion, according to data compiled by Bloomberg.

New Chief Executive Officer Arvind Krishna, who took the reins from Ginni Rometty earlier this month, has the challenge of leading the 108-year-old tech giant through the economic shocks stemming from the coronavirus. Many organizations have delayed major information technology purchases to avoid projects that are expensive, complex and sometimes disruptive to existing business processes. Even before the coronavirus emerged, IBM had struggled to increase sales on a consistent basis.

The company has been trying to boost its share of revenue from hybrid-cloud software and services, which lets customers store data in private servers and on multiple public clouds, including those of IBM rivals Amazon.com Inc. and Microsoft Corp. IBM bought RedHat for $34 billion in 2018 to boost this effort.

“IBM remains focused on helping our clients adapt to the immediate challenges of the Covid-19 pandemic, while we continue to enable them to shift their mission-critical workloads to hybrid cloud and expand their use of AI to help transform their operations,” Krishna said in the statement.

The maker of Watson artificial intelligence systems saw a sales slowdown in cognitive software in March as the pandemic took hold and the economy wound down. Earlier this month, German software maker SAP SE reported a similar downturn in cloud licenses.

IBM reported earnings excluding some costs of $1.84 a share in the quarter, compared with the average analyst estimate of $1.81.

The technology giant reported cloud revenue increased 19% to $5.4 billion. That increase was driven by Red Hat, which contributed $719 million to IBM’s sales in the period, after a financial adjustment related to the acquisition. IBM uses a broad definition for cloud computing, which includes applications, infrastructure and professional services such as consulting into its reporting.

Global Technology Services, which represents about 37% of IBM’s total revenue, continued to decline. The technology consulting unit had sales of $6.5 billion, which is down 5.9% from the same period last year. Global Business Services also narrowly declined, to $4.14 billion -- less than a percentage point from a year earlier.