IBM Sales Miss Estimates on Currency Rates, Services Contracts
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Chief Executive Officer Sam Palmisano expects IBM to almost double operating earnings to $20 per share by 2015, as he continues to focus on more profitable software and services businesses. Photographer: Paul Morse/Bloomberg
July 20 (Bloomberg) -- Rob Enderle, president and principal analyst at consultant Enderle Group in San Jose, California, talks with Bloomberg's Susan Li about the outlook for U.S. technology stocks. International Business Machines Corp., the world's biggest computer-services company, reported sales that missed analysts' estimates as demand for services slowed and the falling euro weighed on revenue. (Source: Bloomberg)
July 19 (Bloomberg) -- Paul Meeks, equity analyst at Capstone Investments Inc., talks about International Business Machines Corp.'s second-quarter earnings. IBM, the world’s biggest computer-services company, reported sales that missed analysts’ estimates as demand for services slowed and the falling euro weighed on revenue. Meeks talks with Carol Massar, Matt Miller, Dominic Chu and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
July 19 (Bloomberg) -- Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management LLC, talks with Bloomberg's Mark Crumpton about the outlook for technology earnings. Santa Clara, California-based Intel Corp., whose processors run more than 80 percent of the world’s personal computers, last week reported record second-quarter sales and topped analysts’ estimates with its forecast for the current period. (Source: Bloomberg)
International Business Machines Corp., the world’s biggest computer-services company, fell in late trading after the company reported revenue that missed analysts’ estimates and a decline in services-contract signings.
Revenue last quarter rose 2 percent to $23.7 billion, the Armonk, New York-based company said today. Analysts on average estimated $24.2 billion, according to a Bloomberg survey. Currency fluctuations reduced sales by $500 million, IBM said.
Services signings declined 12 percent to $12.3 billion, suggesting corporate customers are delaying projects even as the economy recovers. It’s the second straight quarterly decline in contracts for services, which makes up more than half of IBM’s total revenue. Shares fell as much 4.3 percent in late trading.
“Investors simply want to see a bit more in terms of revenue and bookings,” said Andy Miedler, a St. Louis-based analyst at Edward Jones who rates the shares “buy.” “The market is in ‘show-me’ mode. You can’t just tell us you’re going to do this.”
IBM also boosted its full-year profit forecast to at least $11.25 a share, missing analysts’ average estimate of $11.28. The company had previously projected profit of at least $11.20.
Signings declined last quarter as many customers didn’t renew contract extensions while some clients put off closing contracts until the current quarter, Chief Financial Officer Mark Loughridge said on a conference call.
Loughridge cautioned against viewing the results as a sign of “a pullback in spending.” The rollover of deals into the current quarter “should accelerate performance in the outsourcing signings,” he said.
Shares Fall
IBM fell as much as $5.59 to $124.20 in extended trading after reporting the results. The stock closed at $129.79 in New York Stock Exchange composite trading and has lost less than 1 percent this year.
IBM gets almost a third of its revenue from Europe, whose currency fell 9.4 percent against the dollar last quarter. Although the impact from foreign-exchange rates was anticipated, not all analysts took it into account with their estimates, said Deutsche Bank AG analyst Chris Whitmore.
“It’s going to be a headwind,” said San Francisco-based Whitmore, who rates the shares “buy” and doesn’t own them.
Net income climbed to $3.39 billion, or $2.61 a share, compared with $3.1 billion, or $2.32, a year earlier. Analysts estimated earnings of $2.58 a share.
Currency fluctuations hurt profit by about 10 cents to 11 cents, Loughridge said on the call. IBM also said it would introduce its new mainframe computer, part of its System z series, this week.
Acquisition Outlook
Chief Executive Officer Sam Palmisano expects IBM to almost double operating earnings to $20 per share by 2015, as he continues to focus on more profitable software and services businesses. The software segment, the company’s most profitable, will make up about half of total profit in five years, Palmisano has said.
Palmisano plans to make about $20 billion in acquisitions in the timeframe. IBM is investing in markets such as analytics software, which helps companies predict trends, and cloud computing, which lets them store and access information on shared servers. The company is also developing services to monitor highways, electrical grids and other infrastructures to help them run more efficiently.
Increased sales of those technologies, along with growth markets such as Brazil and China, will add $20 billion to revenue by 2015, IBM has said.
To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net
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