IBM revenue hits five-year low

By on
IBM revenue hits five-year low

Hardware income down 23 percent.

IBM has reported its lowest quarterly revenue in five years as the company struggles with falling demand for its storage and server products.

Shares of Big Blue fell about 4 percent to US$188.20 (A$200.60) in after-hours trade.

Total revenue fell 4 percent to US$22.5 billion in the first quarter, below analysts' average estimate of US$22.91 billion.

"They have had eight revenue declines in a row. They have missed so many times, it's hard to keep track of it," said Fred Hickey, editor of The High-Tech Strategist newsletter.

The revenue was the lowest recorded since the first quarter of 2009, when revenue was US$21.71 billion.

Revenue from the hardware business, which includes servers and systems storage, plunged 23 percent to US$2.4 billion.

IBM has been restructuring its business, with job reductions and the sale of its low-end server business to Chinese PC maker Lenovo for US$2.3 billion in January, in efforts to achieve its targeted operating earnings of US$20 per share by 2015.

The company today reiterated its full-year operating earnings target of US$18 per share.

"They used to be a leader. Now they sell one business after the next. That is not a way to grow," Hickey, who has followed IBM for 30 years, said.

IBM warned that its hardware business may continue to face hurdles.

"As we look to the balance of 2014, we continue to expect good performance in the key growth areas, though our overall revenue growth will be impacted by the challenges in our hardware business," CFO Martin Schroeter said on a conference call.

Revenue in the Americas fell 4 percent, while revenue dropped 12 percent in Asia Pacific and declined 11 percent in emerging markets such as Brazil, Russia, India and China.

Software was the only major business to show some growth, with revenue rising 1.6 percent to US$5.66 billion, but the growth rate was slower than the fourth quarter's 2.8 percent.

Last month, the technology research firm Gartner reported that IBM lost its spot as the world's No. 2 software make behind Microsoft. Oracle claimed that spot, which IBM had held for years.

"They are not yet getting the kind of lift off of software that they would need to pump up overall IBM revenues into positive growth territory," Forrester analyst Andrew Bartels said.

Betting on cloud 

IBM plans to spend more than US$1.2 billion to expand its web-based software products, better known as cloud computing.

IBM said its cloud revenue was up more than 50 percent in the quarter. The annual run rate of cloud delivered as a service doubled from last year to US$2.3 billion.

Recently, IBM has bought two companies to expand its cloud business, Silverpop, a developer of cloud-based marketing software, and cloud-based database software startup Cloudant.

The company spent US$3.1 billion to acquire 10 companies in 2013.

In January, IBM said it will invest more than US$1 billion to establish a new business unit for Watson - the supercomputer system that beat humans on the television quiz show "Jeopardy" - deployed on SoftLayer cloud computing infrastructure business the company bought last year.

The global cloud services market last year grew by almost a fifth to an estimated US$131 billion, according to research firm Gartner. IBM Markets Intelligence estimates the market could be as big as US$200 billion by 2020.

"We don't see where the upside is going to come, unless there is something major -- a major restructuring or other major change," Tim Ghriskey, chief investment officer with Solaris Asset Management, which helps manage some US$1.5 billion, said.

Ghriskey said Watson has yet to yield any blockbuster products capable of turning around the revenue declines. "Watson is a way to give them visibility, something for salesmen to talk about."

Profit falls

IBM's first-quarter net profit fell to US$2.38 billion, or US$2.29 per share, from US$3.03 billion, or US$2.70 per share, a year earlier.

The results included a US$870 million charge related to job cuts, the company said.

On an adjusted basis, the company earned US$2.54 per share. Analysts on average had expected earnings of US$2.54 per share, according to Thomson Reuters I/B/E/S.

The stock, which gained 4.6 percent over the last three months, closed at US$196.40 on the Nasdaq today.

Got a news tip for our journalists? Share it with us anonymously here.

Most Read Articles

Log In

Username / Email:
  |  Forgot your password?