“IBM Expands Expectations for Synergy with Red Hat... Future Performance Confirmation Needed”

[Asia Economy Reporter Eunmo Koo] Expectations for synergy with 'Red Hat,' the open-source software company acquired by IBM last year, are expanding. However, since meaningful growth drivers and competitiveness have not yet been sufficiently proven, it is pointed out that confirmation through future performance is necessary.

According to Hana Financial Investment on the 27th, IBM recorded sales of $21.8 billion in the fourth quarter of last year, exceeding market expectations and ending five consecutive quarters of decline that had continued until the third quarter. Sales on a constant currency basis, excluding the effects of exchange rates and business divestitures, increased by 3%. Although GAAP corporate tax provisions significantly decreased compared to the same period last year, nearly doubling earnings per share (EPS) to $4.11, adjusted EPS declined by 3.3% due to increased selling, general and administrative expenses (SG&A) and research and development (R&D) costs.

Sales growth by business division showed the existing direction reflecting the difference in the proportion of traditional IT. The Cloud & Cognitive Software division grew 9% due to new software launches and synergy effects with Red Hat, but the Technology Support division, which has a high proportion of legacy IT, decreased by 4%.

The Systems division, which sells hardware, grew 16.5% due to the effect of the new mainframe launch (end of September), returning to positive growth after five quarters. With the start of synergy effects with Red Hat, total cloud sales increased by 23% to $6.8 billion, expanding the growth rate compared to the previous quarter. Annual cloud sales last year reached $21 billion, raising the sales proportion to 27%.

While synergy with Red Hat raises expectations, it is diagnosed that further proof is still needed. IBM did not disclose specific guidance for 2020 sales growth but referred to the market expectation of 3% growth as 'reasonable,' implying 4-5% growth excluding exchange rate and divestiture effects.

Jaeyim Kim, a researcher at Hana Financial Investment, said, “The number of large Red Hat contracts in the fourth quarter doubled compared to the previous quarter, and the customer base using IBM’s hybrid cloud is expanding, raising expectations for synergy with Red Hat,” adding, “It is positive that the aggressive investment IBM made to enhance cloud competitiveness is progressing properly.”

However, Kim analyzed, “Since meaningful performance momentum and competitiveness sufficient to offset the decline in legacy IT business have not yet been fully proven, confirmation through future performance seems necessary,” and “Stock prices are also expected to gain upward momentum only after this confirmation process is completed.”

This content was produced with the assistance of AI translation services.