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IBM Q2 Tops Forecasts

July 21, 2020

IBM reported second-quarter 2020 earnings results. The firm had earnings of $2.18 per share, adjusted with. $2.07 per share expected. On the revenue line, $18.12 billion came in with $17.72 billion expected.

“Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption," said Arvind Krishna, IBM chief executive officer. "We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world.”

“Our prudent financial management in these turbulent times enabled us to expand our gross profit margin, generate strong free cash flow and improve our liquidity position," said James Kavanaugh, IBM senior vice president and chief financial officer. "We have the financial flexibility to continue to invest in our business and return value to our shareholders through our dividend policy.”

Highlights for the second quarter include:

  • GAAP EPS from continuing operations of $1.52
  • Operating (non-GAAP) EPS of $2.18
  • Revenue of $18.1 billion, down 5.4 percent (down 1.9 percent adjusting for divested businesses and currency)

-- Cloud & Cognitive Software revenue up 3 percent (up 5 percent adjusting for currency)
-- Systems revenue up 6 percent

  • Total cloud revenue of $6.3 billion, up 30 percent (up 34 percent adjusting for divested businesses and currency)

-- Total cloud revenue of $23.5 billion over the last 12 months, up 20 percent (up 23 percent adjusting for divested businesses and currency)

  • Red Hat revenue up 17 percent (up 18 percent adjusting for currency), normalized for historical comparability
  • GAAP gross profit margin of 48 percent, up 100 basis points; Operating (non-GAAP) gross profit margin of 49 percent up 160 basis points
  • Net cash from operating activities of $15.1 billion and free cash flow of $11.5 billion, over the last 12 months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SECOND QUARTER 2020

 

 

 

Results Reflect the Impact of Items Related to

 

 

 

the Red Hat Acquisition Closed in July 2019

 

 

 

 

 

 

 

 

 

 

 

Pre-tax

 

Gross

 

 

 

Diluted

 

Net

 

Pre-tax

 

Income

 

Profit

 

 

 

EPS

 

Income

 

Income

 

Margin

 

Margin

 

GAAP from Continuing Operations

 

$

1.52

 

$

1.4B

 

$

1.6B

 

8.7%

 

48.0%

 

Year/Year

 

 

(46)%

 

 

(46)%

 

 

(43)%

 

(5.8)Pts

 

1.0Pts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Non-GAAP)

 

$

2.18

 

$

1.9B

 

$

2.3B

 

12.8%

 

49.0%

 

Year/Year

 

 

(31)%

 

 

(31)%

 

 

(27)%

 

(3.8)Pts

 

1.6Pts

 

Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $3.6 billion, or $3.0 billion excluding Global Financing receivables. IBM’s free cash flow was $2.3 billion. The company returned $1.5 billion to shareholders in dividends.

IBM ended the second quarter with $14.3 billion of cash on hand which includes marketable securities, up $5.2 billion from year-end 2019. Debt, including Global Financing debt of $21.9 billion, totaled $64.7 billion.

Segment Results for Second Quarter

Segment results reflect growing adoption of IBM's hybrid cloud platform while clients continue to shift priorities to preserve cash and maintain operational stability.

  • Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat, Cognitive Applications and Transaction Processing Platforms) — revenues of $5.7 billion, up 3 percent (up 5 percent adjusting for currency), with growth in Cloud & Data Platforms, up 29 percent (up 30 percent adjusting for currency) led by Red Hat. Cognitive Applications and Transaction Processing Platforms declined. Cloud revenue more than doubled.
  • Global Business Services (includes Consulting, Application Management and Global Process Services) — revenues of $3.9 billion, down 7 percent (down 6 percent adjusting for currency), driven by declines in Application Management and Consulting. Cloud revenue up 12 percent (up 13 percent adjusting for currency). Gross profit margin up 240 basis points.
  • Global Technology Services (includes Infrastructure & Cloud Services and Technology Support Services) — revenues of $6.3 billion, down 8 percent (down 5 percent adjusting for currency). Cloud revenue up 18 percent (up 20 percent adjusting for currency).
  • Systems (includes Systems Hardware and Operating Systems Software) — revenues of $1.9 billion, up 6 percent, led by IBM Z, up 69 percent (up 68 percent adjusting for currency). Storage Systems revenue up 2 percent (up 3 percent adjusting for currency); Power declined. Cloud revenue up 22 percent. Gross profit margin up 430 basis points.
  • Global Financing (includes financing and used equipment sales) — revenues of $265 million, down 25 percent (down 23 percent adjusting for currency), reflecting the wind-down of OEM commercial financing. Gross profit margin up 360 basis points.

Year-To-Date 2020 Results

Consolidated diluted earnings per share was $2.83 compared to $4.58, down 38 percent year to year. Consolidated net income was $2.5 billion, down 38 percent year to year. Revenues for the six-month period ended June 30, 2020 totaled $35.7 billion, a decrease of 4 percent year to year (down 1 percent adjusting for divested businesses and currency) compared with $37.3 billion for the first six months of 2019.

Operating (non-GAAP) diluted earnings per share from continuing operations was $4.02 compared with $5.42 per diluted share for the 2019 period, a decrease of 26 percent. Operating (non-GAAP) net income for the six months ended June 30, 2020 was $3.6 billion compared with $4.8 billion in the prior-year period, a decrease of 26 percent.

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