IBM share price up, to deliver $40 billion in revenue from the cloud

February 27, 2015 9:27 am

ibmInternational Business Machines Corp is looking to boost its presence in the cloud amid sluggish sales in its core businesses as the company announced elevated spending in the fast-growing segment.

The company said on Thursday it would invest $4 billion of its planned spending into “strategic imperatives” of cloud, analytics, mobile, social and security technologies.

Chief Executive Virginia Rometty said she expects the move to translate into $40 billion in annual sales from those businesses by the end of 2018, which would reflect 40% of the company’s targeted revenue for the year.

During the past year the “strategic imperatives” expanded by 16% to $25 billion, accounting for 27% of IBM’s $92.8 billion, which slid 5.7% as the company’s other businesses more than offset the gains from the cloud.

The 103-year-old technology company has been struggling as revenue has fallen in the past three years as more consumers switched to services provided by the cloud.

Ms. Rometty also predicted that IBM would deliver low-single-digit revenue growth in the “long term”. However, in its January quarterly report IBM projected no growth in 2015 and a revenue decline in the first quarter.

The CEO also projected per-share earnings to expand by a high-single digit, also in the longer-term, following a 7% fall in net income to $15.8 billion in the past year, with 2% increase in earnings per share.

However, the company is trying to limit the negative effect of falling sales by reducing its operations in its hardware business, which is now on the profitable side but accounts for less than 10% of IBM’s total revenue, the CEO said yesterday.

During the past year IBM completed the sale of its System X business, which manufacturers “low end”, as the company calls them, x86 CPUs, to Lenovo for $2.1 billion and handed over its semiconductor manufacturing business to Globalfoundries.

Additionally, Ms. Rometty said that IBM’s intentions to spent $4 billion on innovations would not reflect in reduced spending in its other businesses. Previously IBM had projected its “strategic imperatives” to reach double-digit growth in 2015.

IBM dropped 1.19% on Thursday and closed at $160.87 in New York, marking a one-year decrease of 12.60%. The company is valued at $163.35 billion. The stock edged up 0.12% on Friday to $161.07 during after hours trading.

According to the Financial Times, the 21 analysts offering 12-month price targets for IBM have a median target of $160.00, with a high estimate of $198.00 and a low estimate of $125.00. The median estimate represents a 0.54% decrease from the last closing price.

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