Wednesday 29 March 2017

IBM falls as sales miss undercuts optimistic outlook

IBM: contract signings declined in the last quarter. Photo: Getty Images
IBM: contract signings declined in the last quarter. Photo: Getty Images

International Business Machines, the world’s biggest computer-services company, slid in late US trading after the company missed analysts’ revenue estimates and reported a drop in services-contract signings.

Revenue last quarter rose 2pc to $23.7bn (€18.2bn), IBM said. Analysts on average estimated $24.2bn, according to a Bloomberg survey. Currency fluctuations reduced sales by $500m, the company said.

Services-contract signings also declined 12pc to $12.3bn, the company said, for the second straight quarterly decline in contracts for services.

IBM fell as much as 4.3pc to $124.20 in extended US trading after the company reported results.

In German trading, the stock dropped 4.2pc to the equivalent of $124.43 as of 9:55am.

“The market doesn’t want to hear words -- it wants to see results,” said Edward Jones analyst Andy Miedler, who rates the shares “buy,” citing earnings growth.

IBM’s outlook remains healthy, Chief Financial Officer Mark Loughridge said on a conference call.

Signings declined last quarter because many customers didn’t extend contracts and some clients put off signing them until this quarter, he said. IBM actually increased new business signings, he said.

“I don’t think I would take this and interpret it as a reflection that there’s a pullback in spending,” Loughridge said. “The rollover of deals should accelerate performance.”

Outsourcing signings should have double-digit percentage growth in this quarter, Loughridge said.

Services growth, as well as software revenue and new hardware products, will help IBM raise total sales this quarter even with a currency impact, he said.

Forecast boost

IBM boosted its full-year profit forecast to at least $11.25 a share, missing analysts’ average estimate of $11.28. The company had previously projected profit of at least $11.20.

Net income for the quarter climbed 9.4pc to $3.39bn, or $2.61 a share, topping analysts’ average estimate of $2.58 a share.

The company gets almost a third of its revenue from Europe, whose currency fell 9.4pc against the dollar last quarter.

Although the impact from foreign-exchange rates was anticipated, not all analysts took it into account with their estimates, said Deutsche Bank AG analyst Chris Whitmore.

“It’s going to be a headwind,” said San Francisco-based Whitmore, who rates the shares “buy” and doesn’t own them.

Currency fluctuations hurt profit by about 10 cents to 11 cents a share, Loughridge said on the call. IBM also said it would introduce its new mainframe computer, part of its System z series, this week.

2015 outlook

Chief Executive Officer Sam Palmisano expects IBM to almost double operating earnings to $20 per share by 2015, as he continues to focus on more lucrative software and services businesses.

The software segment, the company’s most profitable, will make up about half of total earnings in five years, Palmisano has said.

Palmisano plans to make about $20bn in acquisitions in that period.

IBM is investing in markets such as analytics software, which helps companies predict trends, and cloud computing, which lets them store and access information on shared servers.

The company is also developing services to monitor highways, electrical grids and other infrastructure to help these systems run more efficiently.

Increased sales of those technologies, along with growth markets such as Brazil and China, will add $20bn to revenue by 2015, IBM has said.

IBM also announced a shuffling of management duties at the company yesterday, in an email distributed to employees.

Four top executives will take on additional responsibilities as Palmisano nears 60, the usual retirement age for the company’s CEOs.

The company’s stock closed at $129.79 in New York Stock Exchange composite trading and has lost less than 1pc this year.

Bloomberg

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