Summary
- IBM has recently reported its Q2 results, with revenue declining by 4.2%.
- The corporation continues its generous dividend policy, as dividends reach 60% of free cash flow, with forward yield of more than 4%.
- Although loved by some investors, high dividends and stock repurchases may be among the reasons the corporations is relatively slow with its innovations.
- For instance, in the recent quarter, cloud champion Microsoft spent on R&D three times more than IBM in absolute terms. The former offers about 1.35% dividend yield.
- IBM might need to slow down its capital return program in order to regain its competitiveness and start to increase its revenue.
(Photo by Carson Masterson on Unsplash)
IBM reported another revenue decline in Q2 2019. Cloud revenue is among the positive points
On July 17, IBM (IBM) reported its results for the second quarter of 2019, beating on EPS and missing on revenue. The quarter made another record in the list of periods where IBM demonstrated a YoY decline in revenue. To be precise, it's been at least 14 out of the last 17 quarters where IBM showed negative sales growth.
However, although most of the company's business segments have continued to shrink over time, IBM's Cloud & Cognitive Software segment have tended to be among the decent performers, and Q2 was not an exception. It is reported that the Big Blue generated $5.6 billion in cloud revenue during the quarter, up 3.2% year over year and 5.4% when adjusted for currency swings. Interestingly, Cloud and Data Platforms, a subsegment of the C&CS segment, increased by solid 7% when adjusted for currency.
In contrast, Global Technology Services, Systems, and Global Financing segments demonstrated revenue decline rates of 6.7%, 19.5%, and 11%, respectively. I reported about a year ago that GTS was one of the segments where IBM sought to cut the expenses significantly, primarily by laying off certain share of its workforce and redeploying resources into "more profitable units." Assuming these units were meant to be the cloud and cognitive applications, it is now seen that the efforts made sense at the time but likely do not have a noticeable effect at the moment.
From here, the main thesis arises regarding the future of IBM: although the cloud segment saves the company at the moment, the growth rate is not that impressive, especially compared to the competition. For instance, rivals such as Microsoft (MSFT) expanded its cloud business (namely, Intelligent Cloud segment) by 21% in the latest quarter, generating revenue of hefty $11.4 billion.
