Jim Cramer on Intel and IBM post-earnings slump

Intel shares closed the regular session nearly 6.5percent higher following and earnings and revenue beat. But after hours, the stock fell about 4 percent after incoming CEO Pat Gelsinger said on the analysts call that the majority of the chipmaker’s 2023 products will be made in house rather than outsourced. Subscribe to CNBC PRO for access to investor and analyst insights: https://cnb.cx/2Vtntx6

IBM shares moved as much as 7% lower in extended trading on Wednesday after the company reported fourth-quarter revenue that fell short of analysts’ expectations.

Here’s how IBM performed:

Earnings: $2.07 per share, adjusted, vs. $1.79 per share as expected by analysts, according to Refinitiv.
Revenue: $20.37 billion, vs. $20.67 billion as expected by analysts, according to Refinitiv.

Revenue fell 6% on an annualized basis, the fourth consecutive quarter of declines, according to a statement. Revenue had not fallen so sharply in five years. The company has sought to go bigger in cloud computing and artificial intelligence under new CEO Arvind Krishna, but revenue declines also rankled his predecessor, Ginni Rometty.

“The challenging environment we have seen since March continued with the shift in clients buying behaviors and priorities,” said Jim Kavanaugh, IBM’s chief financial officer, on a conference call with analysts. “Giving the level of macroeconomic uncertainty, more clients tended to move toward shorter duration engagements impacting our software revenue.”

IBM’s Cloud and Cognitive Software segment that includes Red Hat produced $6.84 billion in revenue, down about 5% year over year. That’s lower than the FactSet consensus estimate of $7.18 billion.

The Global Technology Services unit came up with $6.57 billion in revenue, which was down 6% and below the $6.92 billion FactSet consensus.

Global Business Services, which includes consulting, contributed $4.17 billion, down about 3% and more than the $4.08 billion consensus.

Systems revenue of $2.50 billion, from sales of mainframe computers and other hardware, was down by 18% and under the $2.26 billion consensus estimate. The company is comparing against a period when Systems revenue rose from a new mainframe. On top of that, the trend of customers prioritizing operating expenditures over capital expenditures “was amplified this quarter,” Kavanaugh said.

The company did not issue formal earnings guidance but did say it expects revenue growth in 2021, along with $11 billion to $12 billion in free cash flow. “I want to measure the company on revenue growth,” Krishna said.

The company’s earnings per share fell 66%, the sharpest decline in three years, partly because of a $2.04 billion pre-tax charge for structural actions in the quarter. The hit was less than expected; in October the company had said it would be around $2.3 billion. In some countries IBM wasn’t able to complete the structural actions, and it expects to complete the remaining actions over the first half of 2021, resulting in an additional $260 million pre-tax charge, Kavanaugh said.

The charge relates to the plan IBM announced in October to spin off its Managed Infrastructure Services division, which offers hosting for web sites and web-based software, into a separate public company by the end of 2021. The spin-off amounted to the first major shift for IBM since Krishna replaced Rometty as CEO in April. That division currently sits within Global Technology Services. A regulatory filing with more detail on the two resulting companies will come in the fall, Kavanaugh said.

Also in the quarter IBM said it had agreed to buy cloud consulting services provider Nordcloud for an undisclosed sum.

Before the after-hours move, IBM stock was up about 5% since the start of 2021, while the S&P 500 was up around 3% over the same period.

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