IBM sales decline for 6th straight quarter

Bloomberg NewsOctober 16, 2013 

IBMTRAINING02-NE-061113-CCS

IBM consultant Susan Thomas, left, with IBM Global Business Services stands nearby as Raleigh Police Lieutenants R.A. McCleod, 2nd from left, J.C. Walenske, center, R.G. Strickland, 2nd from right, and Donna Bean collaborate on an exercise as they get leadership training at IBM's RTP facility on June 11, 2013.

CHRIS SEWARD — cseward@newsobserver.com Buy Photo

— International Business Machines, the largest technology consulting company, reported its sixth straight quarter of sales declines amid sluggish demand for computer hardware.

Revenue fell to $23.7 billion in the quarter, the Armonk, N.Y.-based company said Wednesday in a statement. Analysts had estimated $24.7 billion on average, according to data compiled by Bloomberg.

IBM, which employs thousands of people in the Triangle, has been shifting its focus to the software business as demand for hardware products, including computer servers, continues to decline. Even the company’s traditional growth markets – developing economies overseas, including China – didn’t help prop up sales last quarter. IBM posted the first revenue decline in those markets in its history.

“Unless IBM begins to rebound in these regions meaningfully, we believe that it will be difficult for IBM to see any upside to its operating results given the pressure on revenue and profitability,” Ben Reitzes, an analyst with Barclays Plc, said in a report last week. With headwinds in the hardware business, “the company may need a major overhaul of its strategy to really muster any growth in the hardware division long term.”

To make up for the slowdown, the company is looking to cloud computing – the delivery of software and services online – and it divulged revenue from that market for the first time. IBM generated more than $1 billion in revenue from cloud products and services in the quarter. The disclosure follows an investigation by the Securities and Exchange Commission into the finances surrounding the company’s cloud business.

IBM shares gained 1.1 percent to $186.73 at the close in New York. The stock has declined 2.5 percent this year.

Net income rose 5.7 percent to $4 billion, or $3.68 a share, from $3.8 billion, or $3.33, a year earlier. Excluding some items, earnings were $3.99 a share in the period, topping the $3.96 predicted by analysts.

IBM is working to rid itself of commodity products, shifting instead toward software-focused businesses that generate higher profit margins. The company on Wednesday reiterated its goal of reaching $20 a share in earnings by 2015, up from $15.25 last year.

IBM agreed to sell off its customer-service unit to Synnex for $505 million in September. It’s also spending more than $800 million to buy Trusteer, a software security company, people familiar with the deal said in August.

In July, IBM acquired SoftLayer Technologies, a cloud-computing storage provider that will help it compete with Amazon.com Inc.

IBM’s hardware business continued to drag the company down, with revenue declining 17 percent in the third quarter. Chief Executive Officer Ginni Rometty shook up the management of the division in April, replacing Rod Adkins with Tom Rosamilia, who had been overseeing corporate strategy.

“We are taking action to improve execution in our growth markets unit and in the elements of our hardware businesses that are under-performing,” Rometty said in Wednesday’s statement.

In the second quarter, IBM spent $1 billion to restructure its workforce, cutting more than 3,300 jobs in the U.S. and Canada alone, according to AllianceIBM, an employee group. Chief Financial Officer Mark Loughridge said earlier this year that divestitures will make up for that expense.

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