IBM forecasts full-year profit above estimates on cloud growth

(Reuters) – International Business Machines Corp (N:) forecast full-year profit above market expectations on Tuesday after reporting surprise growth in quarterly revenue, boosted by its high-margin cloud computing business, sending its shares up more than 4%.

Revenue from the cloud business, which is crucial as IBM pivots away from its established businesses including mainframe servers, rose 21% to $6.8 billion in the fourth quarter ended Dec. 31.

Over the past few years, Chief Executive Officer Ginni Rometty has been trying to shift the company’s focus to the cloud through acquisitions and also by selling some of IBM’s legacy businesses.

IBM bought Linux maker Red Hat Inc (NYSE:) in a $34 billion deal last year, its biggest acquisition so far, in a push to expand its subscription-based software business and counter falling software sales and declining demand for mainframe servers.

The company forecast an adjusted profit of at least $13.35 per share for the year, compared with estimate of $13.29.

IBM had changed its reporting structure last year – its two biggest segments now are cloud and cognitive software, and global technology services.

Revenue from the cloud and cognitive software segment, which includes Red Hat, rose 8.7% to $7.2 billion.

IBM has said that it would report only a portion of Red Hat’s actual revenue for some quarters, while recording all its expenses as required by U.S. accounting standards.

The global technology services segment, which caters to some of the world’s largest data centers, reported $6.9 billion of revenue, down 4.8% from the previous year.

IBM recorded a marginal increase of 0.1% in overall revenue to $21.78 billion in the quarter, its first rise in six quarters. Analysts on average had expected a drop of nearly 1%, according to IBES data from Refinitiv.

Excluding special items, it earned $4.71 per share, above analysts’ expectation of $4.69.

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