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Saturday 20 September 2014

IBM's quarterly revenue sinks to five-year low as hardware sales fall

Published 17/04/2014 | 08:37

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Visitors walk past the IBM booth at the 9th China International Software Product & Information Service Expo in Nanjing, Jiangsu province
Visitors walk past the IBM booth at the 9th China International Software Product & Information Service Expo in Nanjing, Jiangsu province

IBM Corp, the world's biggest technology services company, reported its lowest quarterly revenue in five years on Wednesday, as Big Blue struggles with falling demand for its hardware and faces challenges in growth markets like China.

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Shares of IBM fell as much as 4 percent to $188.20 in after-hours trade.

Revenue for the Armonk, NY-based firm fell 4 percent to $22.5 billion in the first quarter, below analysts' average estimate of $22.91 billion.

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

IBM's first-quarter revenue was the lowest the company reported since the first quarter of 2009, when revenue was $21.71 billion.

Hardware revenue, which includes servers and systems storage, plunged 23 percent to $2.4 billion, as sales in growth markets declined 11 percent, led by Asia-Pacific, where reported revenue declined 12 percent.

IBM has been restructuring its business and laying-off workers in efforts to achieve its targeted operating earnings of $20 per share by 2015. In January, the company agreed to sell its low-end server business to Chinese PC maker Lenovo Group Ltd for $2.3 billion in January.

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

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

All segments of IBM's systems and technology business reported double-digit declines, led by the System z segment that was sold to Lenovo, which fell 40 percent.

The company 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," Chief Financial Officer Martin Schroeter said on a conference call.

CHINA WOES

Revenue in the Americas fell 4 percent, while revenue in the emerging markets of Brazil, Russia, India and China declined 11 percent, led by China where revenue fell by 20 percent.

Although IBM books only about 5 percent of its sales in China, declining revenue over the last three quarters has been dragging down the company's emerging markets business overall.

Chief Executive Ginni Rometty has visited China on two occasions in the last three months, seeking to restore trust with Chinese regulators in the wake of last year's revelations by former National Security Agency contractor Edward Snowden of spying. That has undercut business at some U.S.-based multinationals operating in the world's second-biggest economy.

In February, Rometty held meetings with Chinese officials, including Vice Premier Wang Yang, who is responsible for helping to formulate China's economic policy.

"We expect it will take some time for our business in China to improve," Schroeter said.

Software was the only major business to show some growth, with revenue rising 1.6 percent to $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 Corp. Oracle Corp 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.

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