IBM revenue falls more than expected, shares drop

International Business Machines Corp posted a bigger-than-expected drop in revenue for the fifth straight quarter, hurt by a strong US dollar, and cut its full-year profit forecast, sending its shares lower.

It was the 14th quarter in a row that IBM has posted a reduction in revenue, as the world’s largest technology services company gets rid of low-margin businesses and looks to expand its more lucrative cloud computing business, helping companies manage their data remotely.

Shares of IBM fell 4.8 per cent in after-hours trading to $141.95 (€125.31).

“This is another example of the massive headwinds that large-cap traditional tech stalwarts are seeing in this ever-changing environment, as more customers move to the cloud,” FBR Capital Markets analyst Daniel Ives said.

China was particularly hard hit, with fewer big deals causing revenue from that country to fall 17 per cent, IBM’s chief financial officer said on a conference call with analysts.

IBM lowered its full-year 2015 operating profit forecast to a range of $14.75-$15.75 per share from $15.75-$16.50. Analysts on average were expecting $15.68.

The company is shifting away from hardware to the cloud, much like established rivals such as Oracle Corp and Microsoft Corp. Each is striving to boost Internet-based software and services sales to compete with Salesforce.com Inc and Amazon.com Inc’s web software unit.

In August, IBM said it would buy medical image company Merge Healthcare Inc in a $1 billion deal and combine it with its newly formed health analytics unit, which is powered by its famous Watson supercomputer.

Revenue from what the company calls “strategic imperatives,” which include cloud and mobile computing, data analytics, social and security software, rose about 17 per cent in the third quarter ended September 30th.

Yet the new businesses have so far failed to make up for revenue lost to divestitures. The company known as “Big Blue” has been selling low-margin businesses such as cash registers, low-end servers and semiconductors to focus on high-growth areas such as security software and data analytics, besides cloud-based services.

The sale of these businesses and a strong dollar ate into revenue. IBM’s total revenue fell 13.9 per cent to $19.28 billion in the quarter, while analysts on average were expecting $19.62 billion.

Armonk, New York-based IBM gets more than half its revenue from overseas. The average value of the dollar against a basket of currencies in the third quarter was about 17 per cent higher than the same quarter last year.

Even adjusted for currency and divestitures, the company’s revenue fell 1 per cent.

IBM’s net income from continuing operations fell to $2.96 billion, or $3.02 per share, from $3.46 billion, or $3.46 per share, a year earlier.

Consolidated net income rose to $2.95 billion, or $3.01 per share, from $18 million, or 2 cents per share, a year earlier.

Last year profit was hurt by non recurring pre-tax charge of $3.3 billion, net of tax, for discontinued operations.

Excluding items, IBM earned $3.34 per share from continuing operations in the latest quarter, beating the average analyst estimate of a profit of $3.30 per share.

Up to Monday’s close, IBM’s shares had fallen about 7 per cent this year.

Reuters