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.


Saudi oil refinery in Gwadar to help Islamabad save $3 billion a year

Updated 1 min 38 sec ago
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Saudi oil refinery in Gwadar to help Islamabad save $3 billion a year

  • The refinery would produce up to 300,000 barrels per day once completed
  • Saudi Arabia is also setting up reservoirs for liquified natural gas in Pakistan, says Petroleum Minister Ghulam Sarwar Khan

ISLAMABAD: Pakistan expects to agree a deal to build an oil refinery and petrochemical complex at the Balochistani deep-sea Port of Gwadar, during the first state-level visit by Saudi Arabia’s Crown Prince Mohammed bin Salman.

The deal will see Pakistan join with Saudi Aramco to build the facility, expected to cost $10 billion.

“We are working on feasibility studies for the establishment of the oil refinery and petrochemical complex in Gwadar, and will be ready to start by early 2020,” Pakistan’s Minister for Petroleum Ghulam Sarwar Khan told Arab News on Thursday.

Once established, the project will help the South Asian nation cut its annual crude oil imports by up to $3 billion annually, in addition to creating thousands of job opportunities in the impoverished western province.

The country spends more than $16 billion each year on importing 26 million tons of petroleum products, including 800 million cubic feet of liquified natural gas (LNG) from Saudi Arabia, the UAE and other Gulf countries.

Khan claimed the refinery would produce up to 300,000 barrels per day once completed.

“The Saudi authorities have asked us to complete all the initial work on the project on a fast track, as they want to set it up as early as possible,” he said.

A Saudi technical team, including Energy Minister Khalid Al-Falih, has visited Gwadar twice in recent months to examine the site for the refinery, getting briefings from Pakistani officials on security in the area near the border with Iran.

“We will ensure complete security for Saudi investments and people working on the project. A detailed security plan has already been chalked up with help of the security agencies,” Khan added.

Pakistan currently has five oil refineries, but they can only satisfy half of its annual demand. Islamabad and Riyadh have long maintained strong ties, with the latter repeatedly offering the former financial assistance. Last year, the Kingdom guaranteed Pakistan $3 billion in foreign currency support for a year, and a further loan worth up to $3 billion in deferred payments for oil imports, to help stave off an economic crisis. The Islamic Republic also received $3 billion from the UAE to protect its foreign reserves.

Khan added that the Pakistani-Arab Refinery Co. (PARCO) was also setting up an oil refinery at Khalifa Point, near the city of Hub in Balochistan. 

“The work on this project is at an advanced stage. Land for it has been acquired and other formalities are being fulfilled,” he said.

Khan hopes the world’s perception of Pakistan will change upon completion of these deals, after years of war in the surrounding region. Exxon Mobil returned to Pakistan last month after 27 years, and started offshore drilling with $75 million of initial investments. 

“All results of the drilling are positive so far, and we expect huge oil and gas reserves to be discovered soon,” he said.

“More foreign companies are contacting us to invest in offshore drilling and exploration. Saudi Arabia is also setting up reservoirs for LNG in Pakistan. More Saudi investment will come to Pakistan with the passage of time.”