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IBM slashes debt as Red Hat deal pays off

Admire Moyo
By Admire Moyo, ITWeb news editor.
Johannesburg, 17 Oct 2019
Ginni Rometty, IBM chairman, president and CEO.
Ginni Rometty, IBM chairman, president and CEO.

Computing giant IBM has slashed its debt by $6.7 billion, while strong performance by new acquisition Red Hat accelerated cloud revenue growth.

The company yesterday announced its 2019 third quarter results.

IBM ended the third quarter with $11 billion of cash on hand. Debt, including global financing debt of $23.1 billion, totalled $66.3 billion – down $6.7 billion since the end of the second quarter.

“In the third quarter, as we continued to help clients with their digital reinventions, we grew revenue in our Cloud & Cognitive Software segment and in Global Business Services,” says Ginni Rometty, IBM chairman, president and chief executive officer.

“Our results demonstrate that clients see IBM and Red Hat as a powerful combination and they trust us to provide them with the open hybrid cloud technology, innovation and industry expertise to help them shift their mission-critical workloads to the cloud.”

IBM acquired Red Hat, a provider of open source solutions, in July.

“We continued our focus on the strength of our balance sheet in the third quarter,” says James Kavanaugh, IBM senior vice-president and chief financial officer.

“We generated $12.3 billion in free cash flow over the last 12 months and with our disciplined financial management, we reduced debt by nearly $7 billion in the quarter, while maintaining a strong cash balance.”

In the third quarter, the company generated net cash from operating activities of $3.6 billion, or $2.5 billion excluding global financing receivables.

IBM’s free cash flow was $1.8 billion. The company returned $1.6 billion to shareholders through $1.4 billion in dividends and $0.1 billion in gross share repurchases. The company suspended its share repurchase programme on 9 July.

According to IBM, year-to-date results reflect the impact of items related to the Red Hat acquisition.

Consolidated diluted earnings per share was $6.45 compared to $7.37, down 12% year-to-year. Consolidated net income was $5.8 billion, down 15% year-to-year.

Revenue for the nine-month period ended 30 September 2019 totalled $55.4 billion, a decrease of 4% year-to-year (down 0.7% adjusting for divested businesses and currency) compared with $57.8 billion for the first nine months of 2018.

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