IBM shares tumble on coronavirus impact

IBM reported falling revenue and pulled its forecast on COVID-19 woes.

IBM shares tumble on coronavirus impact

International Business Machines reported a drop in first-quarter revenue and pulled its profit forecast for the year, signaling that the COVID-19 pandemic has become another hurdle for the company in its transition to cloud computing.

Sales declined 3.4% to $17.6 billion in the period that ended March 31, the Armonk, New York-based company said Monday in a statement. Analysts, who recently updated their projections to adjust for the pandemic, expected revenue of $17.7 billion, according to data compiled by Bloomberg.

New CEO Arvind Krishna, who took the reins from Ginni Rometty earlier this month, has the challenge of leading the 108-year-old tech giant through the economic shocks stemming from the coronavirus. Many organizations have delayed major information technology purchases to avoid projects that are expensive, complex and sometimes disruptive to existing business processes. Even before the coronavirus emerged, IBM had struggled to increase sales on a consistent basis.

“This announcement shows Arvind Krishna needs to do a little more than just stay on track,” Ian Campbell, CEO of Nucleus Research, said in an interview.

The company has been trying to boost its share of revenue from hybrid-cloud software and services, which lets customers store data in private servers and on multiple public clouds, including those of IBM rivals and Microsoft IBM bought RedHat for $34 billion in 2018 to boost this effort. It has also heavily promoted its Watson artificial intelligence systems.

“For the next few months, we have to be focused on the stability of the business and be sure we preserve our liquidity and balance sheet,” Krishna said on a conference call with analysts, becoming the first IBM CEO in decades to join an earnings call. Moving forward, the focus will be on hybrid cloud and AI, with quantum computing “coming down the road,” he added.

Shares fell about 3% in extended trading after closing at $120.41 in New York. The stock has declined 10% this year.

IBM saw a sales slowdown in cognitive software in March as the pandemic took hold and the economy wound down. In the near-term, the company expects that clients will postpone projects, particularly involving software, while demand for hardware should remain stable, executives said on the call. Earlier this month, German software maker SAP reported a similar downturn in cloud licenses.

Earnings, excluding some costs, were $1.84 a share in the quarter, compared with the average analyst estimate of $1.81. IBM is on target to trim expenses by $2 billion this year, Chief Financial Officer Jim Kavanaugh said on the call.

The technology giant reported cloud revenue increased 19% to $5.4 billion in the first quarter. That increase was driven by Red Hat, which contributed $719 million to IBM’s sales in the period, after a financial adjustment related to the acquisition. IBM uses a broad definition for cloud computing, which includes applications, infrastructure and professional services such as consulting into its reporting.

Global Technology Services, which represents about 37% of IBM’s total revenue, continued to decline. The technology consulting unit had sales of $6.5 billion, which is down 5.9% from the same period last year. Global Business Services also narrowly declined, to $4.14 billion — less than a percentage point from a year earlier.

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Fortune poll: As businesses adapt to remote work, tech isn’t their biggest problem

A Fortune-Adobe CIO Survey asked 200 chief information officers about this mass transition to remote working.

Fortune poll: As businesses adapt to remote work, tech isn’t their biggest problem

Most businesses were well prepared for their employees to work-from-home en masse, a new survey shows.

As states enacted stay-at-home orders and business closures to slow down the spread of the virus in mid-March, a Fortune-Adobe CIO Survey asked 200 chief information officers about this transition to remote working.

Turns out companies were confident in work-from-home from the start. A total of 84% of CIOs said their organization was already set up effectively for their employees to work remotely when the pandemic hit. And 71% of organizations expanded remote work access to more employees by March 16, finds the Fortune-Adobe CIO Survey.

One might think that large corporations with enterprise tech accounts would be leading in work-from-home practices, but it was actually smaller businesses who were best prepared for work-from-home. While 77% of CIOs at large firms thought their company was set up effectively for work-from-home, that number was 94% at small businesses. Decades ago, smaller businesses might have really struggled through something like this, but that was before the growth in free cloud services, like Google Drive, and telecommunication platforms like Zoom.

When we asked CIOs what was their biggest challenge for their companies to work remotely, only 20% say hardware and 21% said tech tools. The real issue: 53% said getting their employees to effectively communicate with each other is the biggest challenge of remote work. Communication is clearly something employers will work on as these stay-at-home orders drag on.

The Fortune-Adobe CIO Survey found 47% of CIOs said they expect the virus to slow hiring in their department. These tech bosses expect large investments in the areas of artificial intelligence, cybersecurity, and cloud. Since the survey was conducted in mid-March, the economy has set records for job losses—so it’s very likely those AI and cybersecurity investments will get pushed back.

*Methodology: The Fortune-Adobe CIO Survey was fielded between March 12-16 and received 200 responses from CIOs. Participants had to be a CIO from U.S. based companies with at least 100 employees. Participants were verified using publicly available information (e.g., LinkedIn profiles). Data collection was done by Advanis, a research firm and member of the Canadian Research Insights Council. 

Disclosure: Adobe teamed up with Fortune to conduct this CIO survey. Adobe interacts regularly with CIOs through its Adobe Experience Platform, a portal which provides IT and tech leaders real-time customer data. 


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