Big Blue back on the attack, analysts cautious

(Reuters) – IBM shares surged 5 percent on Wednesday after the world’s first big computing company beat expectations on third-quarter revenue and gave an outlook that hinted it was back on a growth track after six years in retreat.

There was no initial sign of changes to major brokerage trading recommendations or price targets for International Business Machines Inc and most shied away from calling a complete turnaround in the company’s fortunes.

But the results pushed Big Blue shares 4.7 percent higher to $ 153.40 in premarket in New York, in stark contrast with a nearly 12 percent fall so far this year.

“We were pleased to see the quality of IBM’s earnings improve, with IP income and taxes being less of a driver of upside than in prior quarters,” Deutsche Bank analyst Sherri Scribner wrote in a note.

While IBM has struggled more than peers such as Oracle Corp and Microsoft Corp to adjust their approach to a changing market, the quarterly performance of its software business was noteworthy given its presence in key software markets, Jefferies analyst John DiFucci wrote in a note.

IBM’s revenue has fallen for 22 straight quarters as weak demand from customers left its legacy hardware and software businesses stagnating.

The results showed revenue from IBM’s cloud, cybersecurity and data analytics business rose 11 percent to $ 8.8 billion in the quarter, accounting for about 46 percent of total revenue.

The company’s software revenue also grew for the first time after 13 consecutive quarters of declines.

“We see the business as secularly challenged due to its high exposure to a legacy business model, and see continued margin pressure over the long-term as IBM’s business is pressured by competition from lower-cost offerings and the cloud,” Deutsche Bank analyst Sherri Scribner wrote in a note.

But she added: “We are modestly adjusting our FY-17E EPS higher on a lower share count and some additional mainframe sales.”

Out of 25 analysts covering the stock, only 6 have a “buy” or higher rating, 15 are on “hold”, and 4 have a “sell” or lower. They have a median price target of $ 154.50.

Reporting by Supantha Mukherjee and Sonam Rai in Bengaluru; editing by Patrick Graham


Verizon to pay $17.7 million to resolve school broadband probe

WASHINGTON (Reuters) – Verizon Communications Inc (VZ.N) said on Tuesday it will pay $ 17.7 million to resolve a probe by U.S. regulators and the Justice Department into potential payment violations related to a federal school broadband program.

The program, called E-rate, is a federal government-backed scheme that provides subsidized broadband and internet service for schools and libraries in the United States and is funded through monthly fees on phone service.

The Federal Communications Commission, the U.S. telecoms regulator, and the Department of Justice said Verizon had invoiced the FCC for consultant charges that were not allowed under an E-rate contract it had to supply the New York City Department of Education with its services.

Verizon said on Tuesday that “today’s settlements fairly resolve years of work by Verizon and the government to return funding to the program.”

The company said that it was a victim of fraud, citing the conviction of a former New York City Department of Education consultant, Willard Lanham.

Lanham was sentenced to 37 months in prison in 2012.

“Like the New York school system, Verizon was a victim of that fraud and five years ago helped to convict Lanham,” the company said.

Government documents said the fraud may have lasted from as long as 2002 through 2008, but Verizon was only charged in a federal civil complaint with filing a fraudulent bill in 2006.

The government cited a New York City Department of Education investigative report that said Lanham was responsible for significant fraud, creating a subcontracting scheme through which he billed millions of dollars to the city school department for consultants he employed without the city or Verizon’s knowledge.

Lanham “manipulated bills Verizon sent” to the department, the FCC said.

In December 2015, the department agreed to pay $ 3 million to resolve the FCC investigation. The department, which has approximately 1.1 million students in over 1,800 schools, has received approximately $ 1.3 billion in E-rate program payments since 1998.

As part of the FCC settlement, Verizon will operate under a compliance plan for three years. It also agreed to surrender any appeal rights to more than $ 100 million in E-rate subsidy payments.

FCC chairman Ajit Pai said in a statement that the settlement was an “important measure that both enforces our rules and restores critical taxpayer dollars” to the Universal Service Fund, a government fund that provides subsidies for telecommunications services.

Democratic FCC Commissioner Mignon Clyburn said in a statement the incident caused “over $ 50 million of harm to the Universal Service Fund” and said the FCC settled “for a fraction of that harm.”

Reporting by David Shepardson; Editing by Sandra Maler and Rosalba O’Brien