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IBM CEO says clients shift priorities toward saving due to COVID-19

IBM said its revenue fell 3.4 percent to $17.57 billion during the first quarter ended March 31, 2020 as the technology company faced challenges from the spread of coronavirus and directed employees to work remotely.
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One quarter ago the US-based company ended a streak of five consecutive quarters of falling revenue.

IBM’s Global Technology Services segment, which includes infrastructure and cloud services and technology support services, posted revenue of $6.47 billion (–5.9 percent) in the first quarter.

IBM’s Cloud and Cognitive Software segment, containing transaction processing platforms, cognitive applications and cloud and data platforms such as Red Hat, generated $5.24 billion (+5.5 percent) in revenue. Red Hat revenue rose 18 percent on a normalized basis.

IBM’s Global Business Services, the segment with consulting, application management and process services, contributed $4.14 billion (–0.5 percent) in revenue.

Systems revenue, from systems hardware and operating systems, totaled $1.37 billion (+3 percent). The Z line of mainframe computers within Systems was up 59 percent as sales of the z15 mainframe continued.

In the quarter IBM announced a 10-year services deal with Banco Sabadell of Spain that includes a hybrid-cloud component.

Net income fell 26 percent to $1.18 billion from $1.59 billion.

IBM withdrew its guidance for the full year in the context of Covid-19. Last quarter IBM’s 2020 forecast was at least $13.35 in earnings per share on an adjusted basis. Three months ago the company had also called for growth in revenue, along with a higher operating gross margin.

IBM CEO Arvind Krishna said the company’s clients have shifted priorities toward saving capital in recent weeks because of COVID-19, hitting software sales in particular.

Krishna said the shift to remote work is accelerating the move towards cloud services offered by IBM. The company’s hybrid cloud offers combined management of on-premises and remote computers for clients.

Most IBM customers were relatively well positioned for the pandemic.

IBM CFO James Kavanaugh said 70 percent of IBM’s revenue is made up by industries that are predicted to be moderately or minimally impacted by the virus outbreak, including healthcare and telecommunications.

“Our near-term performance will ultimately be influenced by client buying patterns in this economic environment,” Kavanaugh said.

Some customers opted to defer purchases for transaction processing, and retail customers hit pause on cognitive applications deals, Kavanaugh said.

IBM for several years has been focused on becoming a major player in the cloud services industry, acquiring Linux maker Red Hat and selling some legacy businesses.

Revenue from the cloud business, previously headed by IBM’s new CEO Krishna, rose 19 percent to $5.4 billion in the first quarter.

Krishna took over the chief executive officer role from Ginni Rometty in April, while appointing former Bank of America’s top technology executive Howard Boville as the new head of IBM’s cloud business.

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