October 17, 2013 / 12:39 PM / 4 years ago

IBM's revenue slump stokes growth fears

Oct 17 (Reuters) - IBM Corp’s shares were set to open 8 percent lower after a drop in hardware sales in the latest quarter reinforced concerns about the company’s ability to grow as it shifts to software and cloud services.

International Business Machines Corp said on Wednesday hardware revenue fell 17 percent in the third quarter and that profitability in the business had declined by $1 billion so far this year.

At least nine brokerages cut their price targets by as much as 9.5 percent, while analysts at UBS Investment Research downgraded the stock to “neutral” from “buy”.

“We think IBM’s market positioning mainly in infrastructure with database and middleware is becoming riskier as customers shift to the cloud,” Societe Generale analysts wrote.

The world’s largest technology services company reiterated its full-year profit outlook, but analysts raised doubts about the company’s ability to convert services backlog to revenue. IBM has reported a decline in revenue for six straight quarters.

“Software has been the growth engine for IBM and has been one of the key reasons investors held the stock. However, it appears that the engine may have stalled and no longer can outgrow the broader software market,” J.P. Morgan analysts said.

IBM has been beefing its software and cloud services offerings through acquisitions. It bought website hosting company SoftLayer Technologies in a deal valued at more than $2 billion in June and paid about $1 billion to buy security-software maker Trusteer in August.

The J.P. Morgan analysts said IBM may just not have the right software assets to address the faster-growing segments.

IBM’s shares were trading at $172.69 before the bell on Thursday. They closed at $186.73 on the New York Stock Exchange on Wednesday. (Reporting by Soham Chatterjee; Editing by)

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