IBM blames China for slide in revenues; IBM Craters To 2 Year Low On Massive Revenue Miss, Asia-Pac, BRIC Sales Both Plunge 15%

October 16, 2013 10:09 pm

IBM blames China for slide in revenues

By Richard Waters in San Francisco

IBM blamed stalling sales in China, caused by uncertainty ahead of the country’s pending economic reform plan, for a large part of an unexpected slide in revenues in the latest quarter, wiping 6 per cent from its market value late on Wednesday. It was a setback for the US technology group’s so-called “growth markets” unit – a term meant to encompass emerging countries that represent the best hopes for expansion – as sales fell by 9 per cent in the quarter.Mark Loughridge, chief financial officer, said much of the problem was caused by Chinese state-owned enterprises and other public sector customers pulling back from buying computer hardware as the country’s leaders prepared an economic reform plan. IBM had suffered “enormous reductions on a year-to-year basis in a geography we tend to see [high] growth rates”, he said.

However, analysts pointed to sluggish performance even in some of the traditionally stronger parts of IBM’s business as signs that it was also fighting headwinds in the developed world and had yet to find a way to revive its giant services arm, which accounts for more than half of sales.

Sales in America had grown by only 1 per cent, said Andrew Bartels, an analyst at Forrester Research, compared with expectations of 3-4 per cent, while the software division that has driven much of the company’s expansion in recent years also recorded growth of only 1 per cent.

The reversal of fortunes contributed to the sixth quarterly decline in IBM’s revenues in a row, with sales falling by 4.1 per cent to $23.72bn. Wall Street had expected the company, whose results are seen as a barometer of IT demand, to end its recent string of declines in the latest quarter.

IBM executives also put the sales slide down to internal performance failures. In a statement, Ginni Rometty, chief executive officer, said the company was “taking action to improve execution in our growth markets unit and in the elements of our hardware businesses that are underperforming”.

Despite that, she said IBM “continued to show strong growth” in markets such as cloud computing, where revenues reached more than $1bn in the quarter, as well as mobile, business analytics and security.

Executives said that management changes and a recovery in China were expected to contribute to a revival in emerging economies, with the “growth markets” unit returning to sales growth of “mid-single digits” for all of 2014.

IBM said it had seen a 17 per cent slump in revenues from hardware, to $3.2bn, as sales of the company’s Power Systems collapsed by 38 per cent.

In spite of the revenue shortfall, IBM’s earnings exceeded expectations, with net income up 6 per cent to $4bn and earnings per share rising 11 per cent to $3.68. On the pro forma basis which Wall Street analysts measure the company, earnings per share hit $3.99, ahead of the consensus forecast of $3.96.

IBM shares were off 5.9 per cent to $175.70 in after-hours trading on Wednesday.

 

IBM Craters To 2 Year Low On Massive Revenue Miss, Asia-Pac, BRIC Sales Both Plunge 15%

Tyler Durden on 10/16/2013 16:19 -0400

Judging by the plunge in IBM stock after hours (accounting for a major portion of the Dow Jones Non-industrial Average Index), the CFO can’t pay shareholders with hopium and rumors. The reason: while IBM beat EPS modestly with a very adjusted bottom line of $3.99, beating estimates of $3.96, driven mostly by this: “IBM’s tax rate was 16.0 percent, down 8.6 points year over year” (assuming a flat tax rate Y/Y, GAAP EPS would plunge from $3.68 to $3.30), it was revenues – that ongoing 2013 horror story for the “stawk” and economic “recovery” – that was the problem, because instead of printing at $24.74 billion where it was expected, sales missed by a whopping $1 billion, or $23.72 billion. Of note: while America revenues of $10.3 billion dropped just 1%, and Europe was actually up 1%, it was the all important China and Japan, i.e. Asia-Pacific, where revenues cratered by an unprecedented 15%! So much for both Abenomics and the Chinese “recovery.” And what’s worse, the Emerging Market callamity of Q3 finally took a big bite: “Revenues in the BRIC countries — Brazil, Russia, India and China — were down 15 percent.” Time to push the global recovery myth to the 4th half of 2013 (the third half is where the government shutdown will be squeezed).

Some more disappointments:

Non-GAAP gross profit margin of 49.1% missed expectations of 49.4%

Services revenue down 3%

Systems and Technology revenue down 17%

The good news: the company keeps its guidance…

The company expects full-year 2013 GAAP diluted earnings per share of at least $15.01. Operating (non-GAAP) diluted earnings per share expectations remain at least $16.25; and at least $16.90, excluding the second-quarter workforce rebalancing charge of $1.0 billion. Operating (non-GAAP) diluted earnings expectations exclude $1.24 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges.

… For now.

And so on. At least the company did not blame this latest Q3 earnings fiasco on the Q4 government shutdown or partly-sunny, sometimes overcast weather.

End result: stock plunging after hours to fresh 2 year lows. Maybe Buffett should stick to banks and other crony capitalist government-bailout specials in the future.