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Cloud growth fuels IBM profit beat

By Sayanti Chakraborty
FILE PHOTO: A man stands near an IBM logo at the Mobile World Congress in Barcelona

By Sayanti Chakraborty

(Reuters) - International Business Machines Corp beat analysts' estimates for second-quarter profit on Wednesday, propped up by recurring growth in its high-margin cloud business.

The company is relying on its cloud business in the face of slowing growth in its legacy businesses, including mainframes and storage systems.

Last week, it wrapped up its $34 billion acquisition of Linux maker Red Hat Inc, its biggest deal so far, to expand its subscription-based software offerings.

Revenue from cloud business, the faster-growing service and a key metric for the company, grew 5% to $4.8 billion during the quarter.

However, a stronger dollar dragged down its revenue by about $500 million. IBM makes over 60% of its revenue from outside the United States.

IBM's Global Technology Services unit, its biggest business by revenue that includes infrastructure, cloud and technology support services, reported a 6.7% drop in revenue to $6.84 billion, missing analysts' estimates of $6.92 billion, according to three analysts polled by Refinitiv IBES.

The company's systems business, which includes its mainframe servers and storage hardware, fell 19.5% to $1.75 billion.

Total revenue slipped 4.2% to $19.16 billion, in line with analysts' estimates of $19.16 billion.

The decline in revenue could be attributed to weakness in the company's legacy business of selling hardware, Chief Financial Officer James Kavanaugh told Reuters.

IBM said it remained on track to achieve adjusted earnings of at least $13.90 for 2019, excluding the impact of Red Hat, in-line with analysts' expectations.

The company added that it would provide an update on 2019 adjusted earnings, including impact from Red Hat on Aug. 2.

The company's net income rose to $2.50 billion, or $2.81 per share, in the second quarter ended June 30 from $2.40 billion, or $2.61 per share, a year earlier.

On an adjusted basis, the company earned $3.17 per share, beating estimates of $3.07.


(Reporting by Sayanti Chakraborty in Bengaluru; Editing by Anil D'Silva)