Shares tumble after sixth straight quarterly decline; revenue dips 4% to $23.7b
International Business Machines, or IBM, the largest computer-services provider, dropped as much as 6.4 per cent in late trading after sales fell for the sixth straight quarter and its hardware business posted a loss.
Revenue dropped four per cent to $23.7 billion in the third quarter, the Armonk, New York-based company said in a statement. That was $1 billion less than analysts had estimated, according to data compiled by Bloomberg.
IBM's shift to higher-margin software and services has failed to make up for a slump in sales of servers and other computer hardware.
Even the company's traditional growth markets — developing economies overseas, including China — aren't helping prop up sales. IBM posted the first revenue decrease in those markets in its history last quarter.
"IBM has been challenged with changing the model on the hardware front, and now the growth markets are a surprise drop," said Chris Ambrose, an analyst at Gartner.
While pursuing higher-margin markets is the right move, "they still have to show revenue growth at some point," he said.
IBM shares fell as low as $174.80 in extended trading on Wednesday after the results were posted. The stock, down 2.5 per cent this year, had closed at $186.73 earlier in New York.
The company lost $713 million in its hardware business in the first nine months of this year, compared with $253 million in profit in the year-earlier period. Revenue from growth markets shrank nine per cent last quarter.
Chinese sales tumbled more than 20 per cent as the country worked on a plan for economic policy, chief financial officer Mark Loughridge said on a conference call.
To make up for the slowdown, the company is looking to cloud computing — the delivery of software and services online — and it divulged revenue from that market for the first time on Wednesday. IBM said it generated more than $1 billion in revenue from cloud products and services in the quarter. The disclosure follows an investigation by the US Securities and Exchange Commission into the finances surrounding IBM's cloud business.
Net income rose 5.7 per cent to $4 billion, or $3.68 a share, from $3.8 billion, or $3.33, a year earlier. Excluding some items, earnings were $3.99 a share in the period, topping the $3.96 predicted by analysts.
The company is working to rid itself of commodity products, shifting instead toward software-focused businesses that generate higher profit margins. IBM reiterated its goal of reaching $20 a share in earnings by 2015, up from $15.25 last year.
IBM agreed to sell off its customer-service unit to Synnex for $505 million in September. It's also spending more than $800 million to buy Trusteer, a software security company, people familiar with the deal said in August.
In July, IBM acquired SoftLayer Technologies, a cloud-computing storage provider that will help it compete with Amazon.com. It paid almost $2 billion this year for the Dallas-based company, said a person with knowledge of the transaction.