There were a couple items International Business Machines Corp. (NYSE:IBM) fans could point to as positives following its recent earnings release. For one, IBM handily beat analyst non-GAAP earnings estimates last quarter — $3.91 a share for Q2 compared to the $3.78-a-share average analysts were expecting. IBM subsequently raised its non-GAAP annual earnings expectations to about $16.90 a share in lieu of the $16.70 forecast earlier this year.
Unfortunately, there were also negatives for International Business Machines Corp. (NYSE:IBM) bears to sink their teeth into. IBM CEO Ginni Rometty gets it: The future of the IT industry is about utilizing massive amounts of data to make business decisions. The question is, how long should IBM investors wait for its shift to take hold?
Even though analysts’ earnings expectations were soundly beaten, International Business Machines Corp. (NYSE:IBM)’s division revenue results saw year-over-year declines in most every area in Q2. But after accounting for a $1 billion charge related to thousands of job cuts in Q2 — over 3,300 employees were let go last quarter alone — non-GAAP results tell a slightly better story.
The aforementioned non-GAAP EPS of $3.91 was an 8% improvement over last year, and International Business Machines Corp. (NYSE:IBM)’s margin improvement — up 1.4 percentage points to 49.7% in Q2 — should get even better as workforce cuts and operating efficiencies start to take hold. Rometty is certainly expecting IBM’s relatively positive non-GAAP earnings and margin results to continue, as indicated by IBM’s raising annual earnings expectations to “at least $16.90.”
Still work to do
The lone revenue bright spot by division for International Business Machines Corp. (NYSE:IBM) in Q2 was its software unit, which enjoyed a 4% jump in revenue to $6.4 billion. It appears that IBM’s efforts to transition from hardware to the services side of the IT industry is working. And IBM competitors are learning that shift in mindset isn’t just a good idea — it’s a necessity.
Another longtime International Business Machines Corp. (NYSE:IBM) competitor, Microsoft Corporation (NASDAQ:MSFT), can certainly appreciate the position of IBM. While the 12% decline in IBM’s hardware division sales in Q2 hurt, every bit of news detailing the decline of the PC market leaves Microsoft shareholders scrambling. But in the latest earnings release, CFO Amy Hood said, “While our fourth quarter results were affected by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter.”