IBM Plunges After Reporting Lowest Q4 Revenue This Century, Slowdown In Cloud And Another Grotesque EPS Fudge

There was some hope last year that IBM was finally turning things around: after all, after 5 consecutive quarters of declining revenues, the company had just managed to grow its top-line for the first time since Q2 2018 - when revenue grew by a paltry 0.1% - and only for the 4th time in the past 8 years. Alas it was not meant to be, and moments ago IBM revealed that revenue declined again in Q4, dropping for the third consecutive quarter, sliding a whopping 6.5%, the biggest decline since 2015 - and while Red Hat revenue rose by 19%, boosting cloud revenue by 10% (including $738MM in internal revenue), total external cloud and cognitive revenues of $6.8 billion once again missed expectations of $7.3BN, and more ominously, were a decline of 4.5% from last year.

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Then again "boosted" may be using the term loosely: at $20.4BN in total revenue, and once again missing consensus expectations of a $20.6BN print, IBM's Q4 2020 was its worst fourth quarter for sales this century.

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Some more Q4 revenue details, which missed across all key categories, including cloud and cognitive:

  • Cloud and cognitive software revenue $6.84 billion, estimate $7.26 billion
  • Global business services revenue $4.17 billion, estimate $4.17 billion
  • Global technology services revenue $6.57 billion, estimate $6.79 billion
  • Systems revenue $2.50 billion, estimate $2.48 billion
  • Adjusted gross margin 52.5%, estimate 51.2%
  • Total cloud revenue of $7.5 billion, up 10%
  • Red Hat revenue up 19%, normalized for historical comparability

And visually:

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And while IBM's Q4 adjusted, non-GAAP EPS of $2.07 beat expectations of $1.79, if down a whopping 56% Y/Y, as usual, this was the product of lots of "artificial intelligence" and aggressive accounting magic because the unadjusted EPS was $1.41, or 32% below the adjusted number. Oh, and the only reason why EPS was this high: IBM reverted to its grotesque "accounting trick" of slashing its effective tax rate, which in Q4 tumbled to just 1.9% down from 8.1% a year ago.

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