(Corrects paragraph 10 to remove reference to Lenovo buying
System z. Lenovo is acquiring System x.)
* First-quarter revenue falls 4 pct to $22.5 bln
* Software only major business to show growth
* Shares decline 4 pct in extended trading
By Supantha Mukherjee and Soham Chatterjee
April 16 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.
Shares of IBM fell as much as 4 percent to $188.20 in
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
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,
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.
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. [ID:nL3N0KQ3DL}
"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
BETTING ON CLOUD
IBM plans to spend more than $1.2 billion to expand its
web-based software products, better known as cloud computing.
IBM said its cloud revenue was up more than 50 percent in
the quarter. The annual run rate of cloud delivered as a service
doubled from last year to $2.3 billion.
Moving to the cloud allows businesses to cut costs by
ditching bulky servers for network-based software and using
remote data centers run by technology companies.
Recently, IBM has bought two companies to expand its cloud
business, Silverpop, a developer of cloud-based marketing
software, and cloud-based database software startup Cloudant.
The company spent $3.1 billion to acquire 10 companies in
In January, IBM said it will invest more than $1 billion to
establish a new business unit for Watson - the supercomputer
system that beat humans on the television quiz show "Jeopardy" -
deployed on SoftLayer cloud computing infrastructure business
the company bought last year
The global cloud services market last year grew by almost a
fifth to an estimated $131 billion, according to research firm
Gartner. IBM Markets Intelligence estimates the market could be
as big as $200 billion by 2020.
"We don't see where the upside is going to come, unless
there is something major -- a major restructuring or other major
change," Tim Ghriskey, chief investment officer with Solaris
Asset Management, which helps manage some $1.5 billion, told
Ghriskey said Watson has yet to yield any blockbuster
products capable of turning around the revenue declines. "Watson
is a way to give them visibility, something for salesmen to talk
Q1 PROFIT FALLS
IBM's first-quarter net profit fell to $2.38 billion, or
$2.29 per share, from $3.03 billion, or $2.70 per share, a year
The results included a $870 million charge related to job
cuts, the company said.
On an adjusted basis, the company earned $2.54 per share.
Analysts on average had expected earnings of $2.54 per
share, according to Thomson Reuters I/B/E/S.
The stock, which gained 4.6 percent over the last three
months, closed at $196.40 on the Nasdaq on Wednesday.
(Additional reporting by Marina Lopes in New York, Jim Finkle
in Boston, Matthew Miller in Beijing; Editing by Sriraj
Kalluvila and Leslie Adler)