IBM falls as analysts question staying power of software rebound

Oct 22 (Reuters) – IBM (IBM.N), opens new tab shares fell 6.5% in premarket trading on Thursday, as analysts said part of the company’s third-quarter software rebound was driven by deals delayed from the previous quarter, raising ‌questions about how sustainable the boost would be.

About $250 million of IBM’s software growth in the quarter came from deals pushed out of the second quarter, and the improvement was more modest without them, BofA Global Research analysts said
IBM now expects annual ⁠software revenue growth of about 7% to 8%, up from 6% to 8%, but kept its overall revenue growth forecast unchanged
Third-quarter revenue in IBM’s transaction processing unit, which sells software tied to its mainframe computers, grew 9%, though CEO Arvind Krishna said he doesn’t expect that pace to continue and sees a more “normalized performance, especially going into next year”
The rebound follows a decline in the unit in the second quarter, when ‌weakness ⁠in IBM’s mainframe hardware and transaction processing software cut more than five points from its growth, finance chief James Kavanaugh said at the time
Bernstein said IBM’s forecast suggests sales in the unit will dip slightly in the fourth ⁠quarter as the lift from the delayed deals wears off
The stock had fallen about 15% this year through Wednesday’s close, including its steepest one-day drop in ⁠over a century in July after CEO Arvind Krishna said IBM had “faltered” in adapting to a shift in customer spending
If current losses hold, ⁠IBM is set to lose more than $15 billion in market value
At least 8 brokerages have raised their price targets on the stock, according to data compiled by LSEG.