Given the results of the fourth quarter by International Business Machines, investors showed their nervousness at the constant struggle of the company to restructure its business as some of its clients have begun to store their data in cloud services provided by rivals of the company such as Amazon and Microsoft. After IBM’s fourth-quarter earnings revealed a breach of analyst expectations, in the January 22 trading session, its shares fell 9.7% to $118.92.
Fourth quarter revenue reported a 6.5% year-over-year drop to $20.37 billion; in turn, sales within the company’s largest units such as cloud and cognitive software also posted a 4.6% decline to $6.84 billion compared to $7.16 billion in the same quarter of the previous year. While total revenue managed to increase 10% reaching $7.5% billion, slower growth was also noted compared to the previous quarter, which was 19%, meanwhile, IBM’s earnings per share were $2.07 during the fourth quarter; for the session on Thursday, January 21, they closed +1.21% at $131.65 ; however, for Friday the shares fell to $117.98 .
The CEO, Arvind Krishna, stated that the best strategy to stimulate the fortune of the company depends on betting heavily on software and services that operate in a hybrid cloud, which refers to the combination of the company’s own servers, company and rent storage and computing power from large vendors. Krishna also mentioned that “ IBM will separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company (“NewCo”). This creates two industry-leading companies, each with strategic focus and flexibility to drive client and shareholder value.” The separation is expected to be achieved as a tax-free spin-off to IBM shareholders, and completed by the end of 2021.
Although these figures are able to dazzle a market in which IBM is surpassed by a significant advantage on the part of Microsoft or Amazon and the fact that the company is in the process of restructuring based on the dismissal of some workers and with a vision of slow growth in terms of corporate IT systems, these are changes that have only managed to negatively influence investors who have noticed the various difficulties that the company has in competition within the market; in turn, the fact that IBM will not provide any kind of forecast on its ninth consecutive quarter in decline and sales stagnation, when relating it to the uncertainty posed by the coronavirus pandemic, it does not reassure its clients or investors that the new administration’s strategies are the best option to make IBM shares an attractive option to bet on.
IBM’s price continues to rise despite the fall it had after the publication of its Q4 earnings, and although it has not stayed above 130 after marking a maximum in the bearish guideline, it failed to break previous highs of September 2020 that have wide rejections from 131.45-135.39. Currently the price is at 118.54 with Resistance are within the 38.2% Fib. level and the 200-Day SMA, that mark a range of 122.20-122.43. Immediate Support levels are on the 61.8% Fib. at 115.98, and the 78.6%-88.6% Fib. at 111.54-108.91 area, which is also the psychological level of 110. This forms an equilateral triangle.
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Aldo Weidner Z.
Market Analyst – HF Educational Office – LATAM
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