* Job cuts mainly outside the United States
* Shares trade higher after hours
By Nicola Leske
July 17 IBM raised its full-year outlook
on Wednesday based on cost cutting and a strong software
International Business Machine Corp beat second-quarter
earnings estimates thanks to growth in its mainframe and
software units, but missed on revenue.
"In the first half, we've had strength in Latin America and
the Middle East and Africa region, but declines in some of our
larger markets like China and Australia have impacted the
overall performance," Chief Financial Officer Mark Loughridge
said on a call with analysts.
"As we look at the second half," he said, "we have some
very, very distinct tailwinds."
He added IBM had the best services backlog growth in four
years and a very strong software pipeline going into the second
The company's shares, which had been up after-hours nearly 3
percent, gave about half of that back to end all of Wednesday's
New York trade up 1.25 percent at $197.01.
IBM said that excluding a $1 billion restructuring charge
related to job cuts, it raised its non-GAAP earnings per share
expectations for this year by 20 cents to at least $16.90.
The cuts were taken mainly outside of the United States, a
spokesman said, adding about 60 percent were from IBM's services
division and 20 percent each from its hardware and software
IBM also said that a "substantial second-half gain" it was
expecting from a divestiture in its previous EPS outlook "will
not likely be achieved" by the end of 2013.
Loughridge did not give details apart from saying that the
company was still in active discussions and that it would not
sell too low or rush into a sale.
Nevertheless, he said, "fundamentally, whether we close a
large divestiture this year or not, we'll not have any effect on
our ability to achieve our 2015 objective of at least $20 per
share on an all-in basis".
Earlier in the year news of talks between IBM and Lenovo
over the sale of IBM's System X server business surfaced but
were not confirmed by the companies.
Brian Marshall, an analyst at ISI Group, said the sale "is
perhaps the last significant opportunity to optimize gross
margins of the IBM product portfolio".
He estimated it could fetch $2 billion to $3 billion in a
Total operating non-GAAP gross profit margin was 49.7
percent in the 2013 second quarter compared with 48.2 percent a
The Armonk, N.Y.-based company said its quarterly non-GAAP
income rose 3 percent, excluding a $1 billion restructuring
charge, to $4.3 billion, or $3.91 a share, compared with $3.51 a
year ago and analyst estimates of $3.77 a share, according to
Thomson Reuters I/B/E/S.
On a GAAP basis, earnings per share were $2.91, down 13
percent; net income was $3.2 billion, down 17 percent.
Revenue dropped 3 percent to $24.9 billion below average
analyst expectations of $25.4 billion.
Adjusted for currency, software revenue was up 5 percent and
its mainframe revenue rose 11 percent in the quarter. Currency
negatively impacted overall revenue growth by about $500
Loughridge said he expected a continued negative impact from
currency through the year.
Several brokerages had cut their price targets for IBM in
the past weeks on concerns over revenue growth and recent weaker
performance by competitors Oracle and Accenture
Analysts said the results were better than expected,
especially after IBM posted a rare miss in its first quarter.
"After a first half that showed muted demand at best, you
have a 20 cent raise excluding the workforce rebalancing, what
is implied you are going to have strength in the higher margin
software and services," said Edward Jones tech analyst Josh
Andrew Bartels, an analyst at Forrester Research, said IBM's
strength in software demonstrated that its "strategic shift to
focus on software is paying dividends".
"For the broader tech market perspective, software overall
will continue to be one of the strongest tech segments in 2013,"