IBM withdraws 2020 earnings guidance due to Covid-19

Armonk, New York-based technology giant IBM has withdrawn its full-year earnings guidance due to the Covid-19 pandemic. The company posted a better-than-expected net income owing to the strong cloud revenue growth of 19% during the first quarter. 

"IBM is withdrawing its full-year 2020 guidance in light of the current COVID-19 crisis. The company will reassess this position based on the clarity of the macroeconomic recovery at the end of the second quarter," the company said in a media statement following the quarterly earnings results announcement.

IBM has reported revenue of $17.6 billion for the first quarter of 2020, down 3.4%, though adjusting for divested businesses and currency, it grew by 0.1%. The company's global business services remained flat at $4.1 billion, while its global technology services business recorded revenues of $6.5 billion, down by 6%. Its recent acquisition of RedHat is paying well with the revenue reporting going up 18%.

The company reported a net income of $1.18 billion, a 26% decline from $1.59 billion it had reported in the year-ago period, which was better than analyst estimates. To put the company's performance in perspective, over the past several years, the company had several quarters of declining revenue and profits and during the years between 2012 to 2018, it had 20 consecutive quarters of losses.   

CEO Arvind Krishna said that the company is winning the hybrid market together with Red Hat with an open-source leadership. 

Read: Meet Arvind Krishna, IBM’s first ‘geek’ CEO as Big Blue drives into the cloud era

"Clients need more than a platform and need deep industry expertise. The clients rely on the services to build and manage the hybrid cloud platform and is a massive opportunity for us," he said in a prepared webcast statement.

IBM said that in the first quarter, the company generated net cash from operating activities of $4.5 billion, or $2.1 billion excluding global financing receivables. The company's free cash flow was $1.4 billion while returning $1.4 billion to shareholders in dividends. IBM ended the first quarter with $12.0 billion of cash on hand, it added.

“Our recurring revenue stream, continued gross profit margin expansion and strong balance sheet and liquidity position remain stabilising elements in an unprecedented business climate,” said James Kavanaugh, IBM senior vice president and CFO.

Indian IT services firms that have put earnings guidance on hold over the pandemic include Infosys, Wipro and Tata Consultancy Services (TCS).

Teaneck, New Jersey headquartered Cognizant withdrew its earnings guidance for 2020 on account of the unpredictable and unprecedented business environment it anticipates this year due to the pandemic.

IT services sector is preparing for a bleak FY21 earnings due to the Covid-19 crisis.