IBM shares climbed more than 5% in after-hours trading as the company’s stronger-than-expected third-quarter results revived hopes that its turnaround strategy is back on track.
Big Blue has been reorganizing itself around a set of emerging cloud, security, and data analytics businesses that CEO Ginni Rometty has dubbed the company’s “strategic imperatives.” The wisdom of that strategy, however, has been questioned as IBM racked up 21 straight quarters of declining growth.
Adding to the concerns, revenue from the strategic initiatives — cloud, analytics, mobile, social and security — rose a surprisingly low 7% in the second quarter.
The third quarter didn’t mark the end of the growth drought but the decline of 0.4%, to $19.15 billion, was smaller than the $18.6 billion analysts had been expecting. Across all five of IBM’s main business segments, the company beat analysts’ estimates on revenue, with strategic initiatives posting an 11% increase to $8.8 billion.
In after-hours trading Tuesday after the earnings release, IBM stock rose 5.6% to $154.72.
“In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business,” CEO Ginni Rometty said in a news release.
Cloud revenue for the quarter was $4.1 billion, up 20% from last year.
As The Financial Times reports, the third-quarter results “showed improving trends in Big Blue’s profit margins and growth businesses, easing investors’ recent worries about the company. The figures were also boosted by the launch of the new [z Systems] mainframe computer two weeks before the end of the quarter, adding a cyclical element to the recovery.”
Management had predicted the heavy investment that had weighed on earnings would pay dividends by the end of the year. Pro forma earnings per share rose 11% in the third quarter to $3.30, compared to an expected $2.28.
IBM is now expecting a stronger than usual seasonal bounce in revenues in the fourth quarter, with sequential quarterly revenues likely to be up $300 million to $400 million on the same period last year. Wall Street is expecting revenue of $21.8 billion.