Cloud strength pushes IBM to sales growth after a year of declines

(Reuters) — International Business Machines returned to sales growth in the first quarter after a year of declines and beat Wall Street targets on Monday, boosted by its bets in the high-margin cloud computing business.

Shares of the Dow component, which have gained nearly 6% so far this year, were up more than 4% in extended trading.

Finance chief James Kavanaugh said cloud spending by clients in retail, manufacturing and travel industries in the United States was picking up after the initial pandemic-driven slump.

Sales from its cloud computing services jumped 21% to $6.5 billion in the quarter. The 109-year-old firm is preparing to split itself into two public companies, with the namesake firm narrowing its focus on the so-called hybrid cloud, where it sees a $1 trillion market opportunity.

Big Blue recorded a sales decline in global technology services, its largest unit, but that was largely offset by a rise in revenue in the remaining three units, including a surprise growth in the business that hosts mainframe computers.

Mainframe saw strong traction from the financial services industry, where its banking clients shopped for more capacity as trading volumes soared during the retail trading frenzy, CFO Kavanaugh said.

Total revenue rose nearly 1% to $17.73 billion in the quarter, beating analysts’ average estimate of $17.35 billion, according to IBES data from Refinitiv.

Net income fell to $955 million, or $1.06 per share, in the quarter ended March 31, from $1.18 billion, or $1.31 per share, a year earlier.

Excluding items, the company earned $1.77 per share, beating market expectation of $1.63.