Couldn't IBM Have Said Something About Red Hat When It Reported Q2 Results?

Technology

Published: July 18, 2019 7:25 am

Last Updated: January 30, 2020 6:26 pm

When International Business Machines Corp. (NYSE: IBM) reported second-quarter 2019 results after markets closed Wednesday, the technology giant company posted adjusted diluted earnings per share (EPS) of $3.17 on revenues of $19.2 billion. In the same period a year ago, IBM reported EPS of $3.08 on revenues of $20 billion. Second-quarter results also compare to consensus estimates for EPS of $3.07 and $19.16 billion in revenues.

IBM stock closed down about 0.3% Wednesday, following an earlier announcement that Big Blue had entered an agreement to modernize and “provide infrastructure to support” software applications for a unit of AT&T Inc. (NYSE: T). The company said that AT&T will use IBM’s recently purchased Red Hat platform to “manage workloads and applications.”

Beyond that, IBM had little to say about how Red Hat fits in with the rest of the firm’s products. The company may not even have anything to say about Red Hat at its annual briefing for investors on August 2. Chief Financial Officer Jim Kavanaugh said only that the company will give an updated financial forecast at that meeting. Ignoring or soft-pedaling Red Hat at that meeting would be a big mistake.

CEO Ginni Rometty said:

With the completion of our acquisition of Red Hat, we will provide the only true open hybrid multicloud platform in the industry, strengthening our leadership position and uniquely helping clients succeed in chapter 2 of their digital reinventions.

IBM’s (actually Red Hat’s) touted “hybrid multicloud platform” is based on an open-source model, something the company has promised to keep supporting but that may be hard to do when push comes to shove later on.

Gross profit dipped slightly but gross margin rose from 46% to 47%, and net income rose from $2.4 billion to $2.5 billion.

The company’s Cloud & Cognitive Software segment posted revenue of $6.25 billion, up 3.2% (excluding internal transfers) year over year for the quarter. Global business services revenue rose slightly to $4.2 billion, and global technology services revenues dropped by 6.7% to $7.14 billion.

Big Blue maintained its full-year adjusted EPS guidance of “at least” $13.90, and Kavanaugh said that no further guidance would be provided until the August 2 meeting. Analysts are looking for third-quarter EPS of $3.53 and revenues of $18.18 billion. For the full year, the consensus estimate calls for EPS of $13.90 and revenues of $76.95 billion, a decline of about 3.3% compared to 2018 revenues.

IBM’s stock traded down about 1.5% in Wednesday’s after-market session and down about 1% in Thursday’s premarket at $141.57, in a 52-week range of $105.94 to $154.36. The consensus 12-month price target on the stock is $147.21. IBM’s dividend yield as of Wednesday’s close was 4.51%.