Following the release of its earnings report for the 1st quarter of 2017, shares in IBM (International Business Machines Corp.) lost 4.7% of their value on April 19th, in pre-trade exchanges at $161.98. As a result, this blue-chip stock started the session at its lowest level in more than 4 months. This was just 7 weeks after it hit $181.95 on March 1st, its highest level since October 2014.
IBM announced a decline in turnover during Q1 2017, mainly due to ongoing demand for IT services. The company has now experienced 20 consecutive quarters of falling revenue. Net income was also down 13% to $1.75 billion. However, earnings per share, used as a reference in the United States, still surpassed analysts’ expectations by 3 cents, reaching $2.38.
The steady decline in IBM’s sales is widely associated with the refocusing strategy that the company has implemented for several years. In response to low demand for both computer hardware and software, IBM has shifted to areas such as data analysis, cloud computing, and security software, and has invested heavily in R&D to improve its services. It is therefore important for traders to keep track of IBM’s investments in new technologies, since this is how the company intends to support future growth. This has clear implications for its share price.
The stock price of IBM could still rise, thanks to:
- The company’s enterprise partnership with Apple
- Higher-margin cloud technologies and the growth of cloud business through “hybrid cloud installations”
- The development of artificial intelligence software “Watson,” designed as a powerful tool for use in the fields of medicine, cyber security, and data analytics, and predicted to become a $10 billion business within the next decade.
Traders should monitor news related to the companies whose stock they invest in. Information such as corporate earnings announcements, reports of employment growth or decline, and influential product reviews can strongly influence the price of a stock. This can affect the risk/return ratio of any portfolio.
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