This article first appeared on GuruFocus.
October 23 – IBM (New York Stock Exchange: IBMThe company's shares fell about 6% in early trading Thursday after the company's third-quarter results, released late Wednesday, showed software growth slowing despite beating consensus estimates.
Tech giant reported adjusted earnings were $2.65 per share, beating analysts' expectations of $2.45, and revenue rose to $16.33 billion, beating consensus estimates of $16.09 billion.
Net income rose to $1.74 billion, reversing a loss from a year earlier. IBM also raised its full-year revenue growth target to more than 5% and raised its free cash flow forecast to $14 billion.
However, investors appear to be concerned about the pace of software expansion. Software sales rose 10% year over year to $7.2 billion, in line with forecasts but falling short of more optimistic expectations. Red Hat, a key driver of IBM's artificial intelligence and hybrid cloud strategy, has shown signs of slowing growth, which analysts say could weigh on sentiment.
Evercore ISI analyst Amit Daryanani said Red Hat's slowdown could worry investors, while Jefferies' Brent Thill said IBM's software recovery now depends heavily on Red Hat's renewed growth. Despite strong infrastructure and consulting profits, traders focused on soft software, sending shares lower.
