International Business Machines Corp., the biggest computer-services company, fell as much as 3.8 percent in extended trading after reporting third-quarter revenue that fell short of estimates as clients delayed orders.
The shares dropped 3.5 percent to $203.72 at 6:48 p.m. in New York after trading as low as $203. The stock, which rose 1 percent to $211 at the close, has gained 15 percent this year.
Revenue dropped 5.4 percent to $24.7 billion, Armonk, New York-based IBM said in a statement after the markets closed. That missed the $25.4 billion average analyst estimate, according to data compiled by Bloomberg. Profit excluding some items rose 5 percent to $4.2 billion, or $3.62 a share. Analysts on average predicted $3.61.
IBM cited an economic slowdown, especially in North America, that caused software deals to be pushed back and kept customers from signing up for business technology services packages. Chief Executive Officer Ginni Rometty, in her first year on the job, is working to combat weak economic growth by expanding in emerging markets and shifting to higher-profit software and services, like data analysis and cloud computing.
“The actual macro environment must be weaker than we thought,” said Josh Olson, an analyst with Edward Jones & Co. in Des Peres, Missouri. With biggest competitor Hewlett-Packard Co. restructuring, “you’d think there would be opportunity there for some gains. The revenue was disappointing.”
Net income was little changed at $3.82 billion, or $3.33 a share. The quarter was especially weak in North America in the final month of the quarter, Chief Financial Officer Mark Loughridge said on a call with investors.
“It was really a falloff that we saw in our GBS business, number one, and in our software business, number two,” Loughridge said, referring to Global Business Services. He attributed the software slowdown to a handful of deals that didn’t take place. “We thought we had those through the end of the quarter,” he said.
IBM said sales were hurt by the divestiture of the company’s point-of-sale business to Toshiba Tec Corp., the Japanese maker of scanners and bar-code machines, during the quarter. The unit generated $1.15 billion in revenue last year. IBM also was ordered to pay an extra $160 million in retirement-related expenses in a ruling by the High Court in London, according to an Oct. 12 regulatory filing.
The U.S. dollar was 13 percent stronger than the euro on average during the third quarter than a year earlier, according to data compiled by Bloomberg. That reduced the value of sales from Europe, the Middle East and Africa, which were down 9 percent to $7.2 billion. Currency fluctuations hurt total sales by $1 billion, IBM said.
IBM is betting on four areas to add $20 billion in incremental revenue by 2015 as it shifts away from less-profitable hardware. The areas include cloud computing, for businesses to store data remotely on IBM servers; analytics software, for businesses to make decisions based on data analysis; “smarter planet,” for monitoring and improving infrastructure like traffic and water systems; and emerging markets, where the company plans to generate 30 percent of its revenue by 2015.
Even in its shrinking hardware business, IBM is designing solutions for new corporate needs. The company updated its PureSystems storage and networking technology with products that focus on business analytics. A new zEnterprise mainframe computer works better with cloud software and storage.