IBM (IBM) shares slumped 4.2 percent to $147.53 in after-market trading on Tuesday after it reported lower-than-expected revenues for 2017 fiscal second quarter.
The tech giant posted adjusted earnings of $2.97 per share, beating analysts’ estimate of only $2.74 per share. However, the company posted a second-quarter revenue of $19.29 billion on Tuesday, which fell short of Wall Street’s expected $19.5 billion revenue. The decline is IBM’s 21st consecutive quarter of revenue decline, CNBC reports.
The Armonk, New York-based multinational is the fifth largest Dow Jones industrial average component in terms of share price, and it was the worst performer in the benchmark. With the index surging and the benchmark is pulled higher, IBM’s underperformance highlights investor doubts about its capability of competing against stronger, fiercer companies.
“As expected, we had a larger currency headwind to revenue growth with about twice the impact of the first quarter,” Martin Schroeter, chief financial officer of IBM, said in a statement. “Excluding the acquisitive content, our year-to-year revenue performance was a modest improvement over last quarter’s rate.”
The company experienced declines in all its business segments, which includes the Cognitive Solutions unit, where Watson and IBM’s artificial intelligence products are housed. Revenues for the business unit dropped 2.5 percent year over year. Revenue of IBM’s Cloud Platforms business segment also fell 5.1 percent year over year, and its legacy systems business also slumped 10.4 percent year over year.
Revenue in other business units like software, hardware and consulting services have likewise declined.
“The results illustrate the continued challenge in returning to year-over-year revenue growth while secular headwinds remain and non-strategic imperatives businesses are still significant revenue contributors,” Ittai Kidron, analyst at Oppenheimer, told the Financial Times.
IBM’s cloud service business segment is struggling. According to a report by Investing.com, Facebook (FB) is planning to move WhatsApp from IBM’s cloud and move it to its own in-house data center. IBM’s legacy hardware and software business is a slowdown, and the company has been trying to transition into more profitable business areas such as cyber security, data analytics, and cloud to drive its revenue up.
The company has also been investing heavily in its artificial intelligence and cloud computing businesses. Earlier this week, IBM launched its latest Z series mainframe, which has the capability of encrypting various kinds of data from different types of applications. Schroeter said that this new mainframe would become the “world’s most powerful transactions system,” and is expected to drive bigger returns.
Revenue from the areas of cyber security, data analytics and cloud—IBM’s “strategic imperatives”—rose 5 percent in the second quarter ending on June 30.
But some analysts are wary about the company’s aggressive investments. They said that IBM’s investments—like the artificial intelligence system Watson—have done little to significantly boost its overall revenue.
However amidst growing concerns about the company’s capability of pivoting away from its traditional PC business towards newer technologies like cloud and artificial intelligence, IBM Chairman and CEO Ginni Rometty remained optimistic and confident about the business.
“We strengthened our position as the enterprise cloud leader and added more of the world’s leading companies to the IBM Cloud,” Rometty said in a statement. “We continue to innovate, adding regtech capabilities to our portfolio of Watson offerings; developing solutions based on emerging technologies such as Blockchain; and reinventing the IBM mainframe by enabling clients to encrypt all data, all the time.”
Some Wall Street analysts are still hopeful that Rometty could turn things around for IBM. In a Bloomberg survey, six out of 29 analysts rated the stock “buy,” while 18 rated it “hold.” Morgan Stanley analyst Katy Huberty, who pegged a $192 price target on the company, also said that IBM should start picking up again by last quarter of the year, Financial Times reports.
Still, the company backed its 2017 adjusted earnings forecast of at least $13.80 per share. But analysts have called its forecast “too high,” with an estimate of only $13.68 earnings per share on average, Reuters reports.