IBM's sales drop for 7th quarter as Lenovo eyes IBM's server business

Bloomberg NewsJanuary 21, 2014 

  • Lenovo eyeing IBM’s server business

    No. 1 PC maker Lenovo confirmed that it is in preliminary acquisition talks with an unnamed third party after media outlets reported that the company is talking to IBM about purchasing its low-end server business.

    Bloomberg News and Reuters, each citing an unidentified source, reported that the companies have resumed talks that reportedly failed to reach an agreement last year. Representatives for Lenovo and IBM declined to comment directly on the reports.

    But Lenovo did issue a statement Tuesday saying it “is in preliminary negotiations with a third party in connection with a potential acquisition. ... As at the date of this announcement, no material terms concerning the potential acquisition have been agreed and the company has not entered into any definitive agreement in relation to the potential acquisition.”

    Lenovo’s worldwide PC shipments have outpaced the industry for 18 consecutive quarters, and for the past two quarters, it has been the undisputed market leader. But in the face of a struggling PC market, the company – which is based in China but has a headquarters in Morrisville that employs about 2,000 workers – has been expanding its focus to other devices, including servers. smartphones, smart TVs and tablets.

    “This transaction would make sense for both companies,” Alberto Moel, an analyst as Sanford C. Bernstein & Co., told Bloomberg News.

    Lenovo became a major player in the worldwide PC market, and a significant employer in the Triangle, when it acquired IBM’s PC business in 2005.

    Staff writer David Ranii

— International Business Machines, the world’s biggest computer-services provider, reported a seventh straight sales decline amid plunging demand for hardware, prompting top executives to forgo bonuses this year.

Revenue fell to $27.7 billion in the fourth quarter, the Armonk, N.Y.-based company said Tuesday in a statement. That missed the $28.3 billion projected by analysts, according to data compiled by Bloomberg.

IBM, which employs thousands at its Research Triangle Park campus, is shifting to more profitable businesses such as cloud computing and data analytics, aiming to compensate for the hardware slump. CEO Ginni Rometty also has slashed expenses through job reductions and the sale of lower-margin businesses. Though these efforts are making progress, the results led Rometty to opt against bonuses, she said.

“In view of the company’s overall full year results, my senior team and I have recommended that we forgo our personal annual incentive payments for 2013,” she said.

IBM’s shares closed at $188.43 before the quarterly report was released. The stock declined 2.1 percent in 2013, making it the only loser in the Dow Jones industrial average.

The company exceeded profit estimates last quarter, helped by cost cutting and software growth. Excluding some items, earnings climbed to $6.13 a share, IBM said. Analysts had estimated $6 on average. The company is targeting adjusted earnings of $20 a share by 2015.

Chief Financial Officer Mark Loughridge, the longest-serving CFO in IBM’s 103-year history, retired at the end of 2013. That puts the company’s profit goals under the purview of his successor, Martin Schroeter.

IBM is betting on a shift to cloud services, which are delivered online rather than via local computers. But the transition has brought a new crop of competitors and eroded demand for traditional hardware.

In her biggest acquisition since taking over as CEO two years ago, Rometty bought cloud-computing storage company SoftLayer Technologies in 2013 for about $2 billion. IBM plans to spend $1.2 billion on its cloud-services business this year, the company said last week.

The move follows IBM’s announcement this month of a new business division around its Watson supercomputer, which can analyze large volumes of data and answer questions in conversational language. IBM will invest more than $1 billion in the unit and set up its own headquarters in New York. Watson’s big-data services, which let customers mine vast troves of information, will be run on SoftLayer’s cloud.

While IBM plans to focus more on SoftLayer and Watson, the company may face challenges in meeting is earnings goals, Maynard Um, an analyst at Wells Fargo & Co., said in a note to investors. He has a neutral rating on the shares.

“It has faced some macro and execution challenges and, in our view, has fewer levers to drive EPS without revenue growth,” he said.

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