IBM beats estimates; sees gains as customers accelerate shift to cloud

IBM has jettisoned some of its legacy business to focus on the high-margin cloud computing business.

IBM's shares rose 5% in after-hours trading. (REUTERS)

International Business Machines Corp beat estimates for second-quarter profit on Monday and signalled that demand in its cloud computing business would get a boost as large corporations accelerate their digital shift due to the coronavirus crisis.

The company's shares rose 5% in after-hours trading.

IBM has jettisoned some of its legacy business to focus on the high-margin cloud computing business, an area that has seen a lot of action in recent years as companies ramp up their digital shift to boost efficiency.

"The trend we see in the market is clear. Clients want to modernize apps, move more workloads to the cloud and automate IT tasks," IBM's new boss Arvind Krishna said on a post-earnings call with analysts.

Revenue from the cloud business, previously headed by Krishna, rose 30% to $6.3 billion in the second quarter.

Krishna took over as chief executive officer from Ginni Rometty in April, while appointing former Bank of America Corp's top technology executive, Howard Boville, as the new head of the cloud business.

IBM's global business services unit was impacted as clients cut or delayed spending on discretionary projects due to COVID-19, CFO James Kavanaugh told Reuters. Sales in the unit fell 7% to $3.9 billion.

While Western Europe and Asia Pacific showed a pickup in client spending during June, U.S. and Latin America customers pulled back as the pandemic impact got worse, Kavanaugh said.

"From a client perspective, our business is more concentrated in large enterprises, which in total have been relatively more stable throughout the pandemic," Kavanaugh said.

IBM's total revenue fell 5.4% to $18.12 billion, but came in above analysts' estimates of $17.72 billion, according to IBES data from Refinitiv. Excluding the impact from currency and business divestitures, revenue declined 1.9%.

Excluding items, the company earned $2.18 per share, above estimates of $2.07.