Why IBM's Ready to Regain Growth
Tech giant International Business Machines (NYSE: IBM) doesn't seem like an agile, innovative company primed to outperform the fast-moving tech industry. IBM's large scale and long history magnify the market's doubts about the company's ability to become a growth story. But Wall Street doesn't realize yet just how much IBM is actually poised to drive technological shifts – and its own future expansion.
There are many reasons to view IBM as a shrinking old-tech company. After several years of decline, trailing-12-month revenue dropped to $79.6 billion, compared to a peak of $106.9 billion in 2011. The 108-year-old company has been struggling with hardware-related businesses and has divested some of these legacy activities. For instance, the Intel-based server business IBM sold to Lenovo in 2014 represented $4.6 billion of revenue the previous year. Employee headcount shrank from an average 433,362 in 2011 to 350,600 in 2018, another sign of decline.
But IBM is transitioning to growth areas, and the shift to cloud computing is a significant part of this strategy. IBM's trailing-12-month cloud revenue of $19.5 billion grew 8% year over year. And the acquisition of Red Hat should contribute to the expansion of its cloud businesses, which represented roughly 25% of IBM's revenue over the last 12 months. This evolution has also fattened margins: Pre-tax income margin increased to 16.6% during the last quarter compared to 15.9% two years ago.
Source Fool.com
