IBM returns to growth after 6 years, warns higher tax rate to hit profits

Total revenue increased 3.6 percent to $22.54 billion, beating analysts’ average estimate of $22.06 billion. (Reuters)
Updated 19 January 2018
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IBM returns to growth after 6 years, warns higher tax rate to hit profits

BENGALURU: International Business Machines Corp’s revenue rose for the first time in 23 quarters, beating analysts’ estimates, but the company warned that a higher tax rate this year would eat into its profit.
IBM’s shares, which have rallied 10 percent so far this year on hopes of a strong turnaround in the company’s fortunes, fell more than 3 percent in extended trading on Thursday.
The company forecast stable margins and revenue growth for 2018, buoyed by growth in its newer businesses such as cloud computing and security services.
However, IBM forecast an operating profit of at least $13.80 per share for 2018, compared with $13.80 in 2017 and market expectations of $13.92, according to Thomson Reuters.
“According to Street expectations, we’re already very low for earnings, ... but still, you would have liked to have seen, with the little better revenue trajectory and some positive comments, that would have played in to a nicer number,” Pivotal Research analyst Lou Miscioscia said.
IBM forecast a 2018 operating tax rate of 16 percent, plus or minus 2 percentage points, compared with a rate of 12 percent in 2017.
“Tax will be a headwind in 2018,” IBM veteran and new Chief Financial Officer James Kavanaugh said on a conference call.
Kavanaugh said IBM would continue to “maintain a high level of investment” in 2018 as it boosts its capabilities on its high-margin “strategic imperatives” such as cloud, mobile, cybersecurity and data analytics.
That focus, started by Chief Executive Ginni Rometty, has helped IBM counter its faltering legacy hardware and software businesses and slow its revenue declines in recent quarters.
The company’s revenue finally rose in the latest fourth quarter, the first year-over-year increase since the first quarter of 2012, just after Rometty became CEO.
Revenue from IBM’s cloud business jumped 30 percent in the latest quarter. Revenue from all “strategic imperatives” rose 17 percent.
Total revenue increased 3.6 percent to $22.54 billion, beating analysts’ average estimate of $22.06 billion.
IBM swung to a loss of $1.05 billion from a year-ago profit of $4.50 billion, due to a $5.5 billion tax reform-related charge. Its adjusted profit of $5.18 per share beat estimates by a penny.
The company’s adjusted gross margins of 49.5 percent fell short of market expectations of 50.8 percent.


World’s biggest sovereign fund worried about trade wars

Updated 21 August 2018
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World’s biggest sovereign fund worried about trade wars

  • The fund posted a positive return of 1.8 percent, or 167 billion kroner ($19.8 billion), in the second quarter
  • Markets are worried about a trade dispute between the United States and China

OSLO: The managers of Norway’s sovereign wealth fund, the world’s biggest, expressed concern Tuesday about global trade tensions, which could heavily impact its value.
The fund posted a positive return of 1.8 percent, or 167 billion kroner ($19.8 billion), in the second quarter, helping erase a loss of 171 billion kroner in January-March that was attributed to a volatile stock market.
The Government Pension Fund Global, which saw its total value swell to 8.33 trillion kroner by the end of June, manages the country’s oil revenues in order to finance Norway’s generous welfare state when its oil and gas wells run dry.
But Norway’s central bank, which runs the fund, said geopolitical and trade tensions presented a risk.
“It’s fair to say that increased trade barriers or even trade wars will not be beneficial for the fund as a long-term global investor,” Trond Grande, the deputy chief of Norges Bank Investment Management, told reporters.
Markets are worried about a trade dispute between the United States and China. Accusing Beijing of unfair competition, the US administration is considering slapping a new round of levies worth $200 billion on Chinese goods.
Talks between the two slated for Wednesday and Thursday aimed at resolving the dispute have however eased concerns somewhat.
Following US-Turkey tensions that sent the Turkish lira and the Istanbul stock market tumbling, the Norwegian fund said its assets there were worth less than the 23 billion kroner they were at the beginning of the year.
“We’ve seen the market rise for a long time, that there are different political and geopolitical events in the world that can affect the market, and we have to be prepared for the fact that (the value of) the fund can go down a lot,” Grande concluded.
The fund’s strong second quarter was attributed primarily to its share portfolio, which accounts for 66.8 percent of its investments and which rose by 2.7 percent.
Real estate holdings, which account for 2.6 percent of its holdings, rose by 1.9 percent, while bond investments, which represent 30.6 percent, remained flat.
Faced with falling oil revenues in recent years, the Norwegian government has been tapping the fund to finance public spending since 2015. But with oil prices recovering, the fund registered its first inflow in three years in June.