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

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Samsung scion's defense fights back as legal appeal begins

SEOUL (Reuters) – The heir to South Korea’s Samsung Group appeared in a packed court on Thursday for the first day of arguments in the appeal of his five-year jail term for corruption.

The 49-year-old Jay Y. Lee was convicted by a lower court in August of bribing former president Park Geun-hye to help strengthen his control of the crown jewel in the conglomerate, Samsung Electronics, one of the world’s biggest technology companies.

The appellate court hearing the appeal is likely to try to rule on the case by next February, legal experts said. Whichever side loses could take the case to the Supreme Court, the final court of appeal in South Korea.

Lee’s presence marked his first public appearance since the August ruling. He did not speak during the early proceedings other than giving his birth date and address.

The lower court in August had ruled that while Lee never asked for Park’s help directly, the fact that a 2015 merger of two Samsung affiliates did help cement Lee’s control over Samsung Electronics “implied” he was asking for the president’s help to strengthen his control of the firm.

The defense strongly challenged the lower court’s logic that Lee’s actions “implied” solicitation for help from Park by providing financial support for the former president’s close friend and confidante Choi Soon-sil.

The prosecution, which has lodged a cross-appeal against the lower court ruling that found Lee innocent on some charges, said the court’s decision to not acknowledge explicit solicitation for Park’s help from Samsung despite the evidence found “did not make sense”.

DEFENSE FIGHTS BACK

The defense, which spent much of its time during the initial trial refuting the prosecution’s individual charges, is expected to focus on a few key arguments in the appeal – including whether there was in fact an “ordinary type of bribery” as defined under South Korean law, which says only civil servants come under the statute.

Park’s friend Choi was not a civil servant.

The lower court found that Samsung’s financial support of 7.2 billion won ($ 6.27 million) to sponsor the equestrian career of Choi’s daughter constituted an ordinary type of bribery, as “it can be considered the same as she (Park) herself receiving it.”

The defense is expected to strongly challenge this by saying that the prosecution, on whom the burden of proof lies, has not proved collusion between Park and Choi.

Reporting by Joyce Lee; Additional reporting by Heekyong Yang; Editing by Neil Fullick

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