IBM has long road to growth despite gains: Analyst



IBM faces a long road back to growth despite gains in the tech giant's strategic imperatives, Cantor Fitzgerald analyst Joe Foresi said Tuesday.

IBM reported first-quarter earnings Monday that beat on the top and bottom line as it saw a double-digit increase in revenue from its cloud services. Despite topping expectations, the company's quarterly revenue fell for the 16th-straight quarter.

Big Blue's worst revenue in 14 years sent its shares tumbling. The stock was down nearly 4 percent in premarket trading Tuesday.

Under Chief Executive Ginni Rometty, IBM has been moving toward areas such as cloud-based services, security software and data analytics, while trimming its traditional hardware business by exiting low-margin businesses.

The problem is that revenues generated by 60 to 70 percent of IBM's business are still declining 10 percent, Foresi told CNBC's "Squawk Box."

"Really, that's the area where we're most concerned," he said. "We don't have this company returning to growth for another two years."

IBM reported that quarterly revenue from its strategic businesses like cloud and analytics increased 14 percent year over year and now represent 37 percent of the company's revenue. IBM's cloud revenue rose 34 percent this quarter and totaled $10.8 billion for the last 12 months.

While IBM has "tremendous global reach" and "very good" intellectual property, the business is so large that it could take years to adjust to new technology demands and deploy its portfolio of acquisitions, Foresi said.

"If you survive for as long as they have, you essentially become a portfolio management firm, and when you morph into that portfolio management firm, it's really about when can you get the portfolio organized to go through the global delivery network?" he said.

Louis Miscioscia, IT hardware analyst at CLSA, said IBM has taken too long to restructure its global services business, where revenues fell 4.3 percent in the first quarter. Meanwhile, competitors have grown double digits in categories like consulting and application management, he told CNBC's "Squawk Box" on Tuesday.

"If they take this year and they can restructure that, and show some growth there, that, along with basing and improving their software, should give them a chance to bounce back and show some growth in the not-too-distant future," he said.

The company posted earnings per share of $2.35 on $18.68 billion in revenue. Analysts had expected IBM to report earnings of about $2.09 a share on $18.29 billion in sales, according to a consensus estimate from Thomson Reuters.

Last year, IBM reported revenue of $19.59 billion for the first quarter.

"We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms," Rometty said in a statement.

The company also maintained its full-year guidance of at least $13.50 per share.

Up to Monday's close, IBM's shares had risen 10.83 percent this year, compared with the 2.46 percent gain in the S&P 500 index.

IBM's cloud video unit announced partnerships with Comic-Con, Canadian Broadcasting Corp., AOL and Broadway Video on Monday.

Earlier in April, IBM closed its $2.6 billion acquisition of Truven Health Analytics, adding 8,500 clients to its Watson Health portfolio.

Source: http://www.cnbc.com
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