IBM revenue hurt by strong dollar, tight IT budgets

CHALLENGING TIME: A sign at the IBM facility near Boulder, Colorado. IBM posted a quarterly revenue miss and barely beat analyst expectations for earnings per share as customers put off spending on big ticket items and a stronger dollar hit the company’s top line. - Reuters

NEW YORK: IBM posted a quarterly revenue miss and barely beat analyst expectations for earnings per share as customers put off spending on big ticket items and a stronger dollar hit the company’s top line.

Businesses and governments are holding back on spending on information technology amid economic uncertainty in Europe and ahead of US elections next month.

IBM, which has shifted its focus to higher-margin software and services from tech products, said on Tuesday that earnings per share, excluding items, were US$3.62 (RM10.86), just beating average analysts’ estimates of US$3.61 (RM10.83).

Excluding a US$160mil (RM480mil) charge related to British pension fees, net income fell slightly to US$3.82bil (RM11.46bil) from US$3.84bil (RM11.52bil) a year ago while net income, excluding acquisition costs, rose 5% to US$4.2bil (RM12.6bil).

Revenue eased 5% to US$24.7bil (RM74.1bil) due to a negative currency impact of almost US$1bil (RM3bil). Wall Street had expected a decline in revenue by about 3% to US$25.36bil (RM76.08bil).

“If you look at the third quarter performance, we did start off the first two months of the quarter on a stronger trajectory than we saw for the full quarter,” chief financial officer Mark Loughridge said on a call with analysts.

He added “a handful of deals ... fell out of the quarter” which the company had thought were secure.

The CFO also said that several large countries had disappointed with Mexico and Australia “both down double digits.”

Global Equities Research analyst Trip Chowdhry said that some customers are holding off with purchases ahead of the US presidential election, going ahead only with smaller purchases instead of replacing entire systems.

“Customers are just not opening their wallets,” he said. “That is putting pressure on IT spend.”

Forester analyst Andrew Bartels agreed, saying that CEOs were waiting for clarity on “whether the fiscal cliff will be avoided and when will Europe finally turn the corner.”

Fiscal cliff refers to the impact of around US$600bil (RM1.8 trillion) in tax hikes and automatic spending cuts set for 2013 as a result of successive failures by Congress to agree on an orderly alternative method of reducing US budget deficits.

Bartels added that the third quarter would likely be IBM’s weakest quarter.

Revenue from IBM’s EMEA region, which includes Europe, Middle East and Africa were US$7.2bil (RM21.6bil), down 9%, without adjusting for foreign exchange effects.

In the Americas revenue declined 4% to US$10.4bil (RM31.2bil) while Asia-Pacific revenue rose 1% to US$6.5bil (RM19.5bil).

The company said its services backlog at Sept 30 was US$138bil (RM414bil), up 1% year-over-year, while signings of services contracts were US$13.3bil (RM39.9bil) versus estimates of US$12.4bil (RM37.2bil).

Investors view signings as a key indicator of future profits, but IBM says the focus should be more on the total business backlog because it is a better sign of future revenue.

IBM reiterated its outlook for the year, targeting earnings per share of at least US$15.10 (RM45.30).

IBM stock lost 3.31% to US$204 (RM612) in afterhours trading. It closed up 1% at US$211 (RM633) on Tuesday. — Reuters

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