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IBM lowers 2019 earnings guidance after closure of Red Hat purchase

IBM
Published on: Aug 3, 2019
Author: Amy Liu
  • IBM closed its $34 billion acquisition of Red Hat last month.
  • The company now expects full-year earnings to be lower with Red Hat in the mix, partly because of an adjustment to deferred revenue.

IBM lowered its earnings forecast for the year on Friday to take into account the Red Hat acquisition, which closed last month. The decreased guidance reflects a $2.2 billion purchase-accounting adjustment to record deferred revenue at face value as well as retention payments and the earlier-than-expected ending of IBM’s share buyback.

IBM now expects at least $12.80 in earnings per share this year, excluding certain items, down from the previous guidance of at least $13.90. IBM shares rose immediately after the new guidance was issued but later lost their gains and closed down 2% on Friday.

The $34 billion deal for Red Hat is IBM’s largest to date. With Red Hat, IBM can look to expand revenue as companies use the software to run applications in the public cloud, whether it’s on Amazon Web Services, Microsoft Azure or IBM’s own cloud. IBM reiterated that Red Hat will bolster earnings in 2021. Source: CNBC

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