IBM's revenues fall into long-term sales decline

On Wednesday, IBM reported sales of $ 18.03 billion, below analysts' expectations, following the $ 18.76 billion it posted the year before. Shares fell by 6% in afternoon trading.

Revenue decline was IBM's 27th overall under Miss Rometty, who has struggled to adapt the more than one-hundred-year-old company to a changing global IT landscape since taking the reins in 201[ads1]2.

The company's carefully followed adjusted earnings pr. the share fell to $ 2.68, but came in slightly higher than analysts' forecasts of $ 2.66.

Ms. For years, Rometty has been trying to reinvent IBM, focusing on areas such as healthcare technology and artificial intelligence. Cloud computing, a model where customers rent computing power instead of buying their own machines, is another cornerstone of Miss Rometti's bid to revive IBM's fortunes.

While Big Blue was an early pioneer in cloud computing services, it fell behind rivals such as

Amazon.com Inc.

and

Microsoft Corp

IBM is the fifth largest cloud computing company after sales, according to research firm

Gartner Inc.,

with a market share of 1.8% last year. The Red Hat agreement, which was concluded this year, aims to drive IBM into a top player in the cloud.

Revenues in the company's cloud business rose 11% in the third quarter to $ 5.0 billion, IBM said.

"Our results show that clients see IBM and Red Hat as a powerful combination," Rometty said. IBM's slider growth rate is still following the increases Amazon and Microsoft have reported.

The company said that Red Hat revenues increased 19% in the last quarter, the first since the deal is close. But accounting rules limited the portion of sales IBM was able to include in its quarterly results. IBM reported all the expenses to Red Hat, which hurt its profits.

With Red Hat, IBM hopes to have a dominant role in what it terms as the "hybrid cloud." The company is betting that many companies have not yet migrated their data. to the cloud and that many will choose a so-called hybrid model, which IBM has focused on, where data storage relies on a mix of internal and leased computers. Red Hat sells support and training for software that aims to work seamlessly in the cloud and on-premises, which IBM considers critical in a hybrid cloud world.

As IBM continues its cloud focus, it has tried to reorient its traditional division of technology services by shedding parts of the lower margin of that business, leading to lower sales. Revenues in that segment, which sells outsourced IT to companies, fell 5.7% in the third quarter to $ 6.70 billion, leading to the overall sales direction.

IBM's revenue from selling large machines – huge computers that handle transactions and manage company data and a traditional earnings pillar for the company – also fell during the quarter. Sales of mainframes increased after IBM introduced its latest generation of them in 2017, but has fallen off the last few quarters. The company unveiled a new version of the main images in September, but they are not expected to have a significant impact on the financial results before the current quarter.

Corrections and Reinforcements
Ginni Rometty is IBM's CEO. An earlier version of this article spelled her first name as Ginny.

Write to Asa Fitch at asa.fitch@wsj.com