--Revenue declines across all business lines
--Currency headwinds amount to $1B of revenue
--Company affirms full-year view of core earnings
(Adds fresh stock quote, additional company background, analyst
commentary.)
By Drew FitzGerald and Nathalie Tadena
International Business Machines Corp. (IBM) reported declining
third-quarter revenue in each of its major segments, including a
double-digit dip in hardware sales, the latest indication that
businesses are cutting back on technology spending.
The Armonk, N.Y., company was hurt by shifts in currency and saw
particular weakness in North America, its largest market,
especially in September.
"We did start off the first two months of the quarter on a
stronger trajectory than we saw for the full quarter, as we saw a
falloff in growth rates at the third month of the quarter," Chief
Financial Officer Mark Loughridge said.
IBM has benefited from its push toward higher-margin, complex
areas such as business analytics, and away from crowded fields
where companies can compete on price only.
The push toward stronger profitability has succeeded in growing
IBM's bottom line faster than many of its peers in recent years,
though revenue has now declined in the past two quarters as the
company sheds lower-priority businesses.
"That was definitely factored to a degree, but obviously not
enough," said Shaw Wu, analyst with Sterne, Agee & Leach. "All
their businesses saw some sort of slowdown."
Currency headwinds have dragged on IBM's results this year.
Unfavorable exhange rates hurt revenue growth by nearly $1 billion
in the latest period.
IBM has been making heavy investments in emerging markets, which
has helped boost results in recent periods. However, in the latest
quarter, revenue in IBM's growth markets--which include Brazil,
Russia, India and China--slid 1% and were up 4% adjusting for
currency.
"The BRIC countries in total performed well again, but North
America declined," Mr. Loughridge said. Revenue from the four BRIC
countries rose 4 percent, or 11 percent adjusting for currency,
while the topline in the Americas declined 4%, or 3% in constant
currency.
Big Blue's shares fell 3.4% to $203.80 after-hours, retreating
from an all-time high reached earlier this month. The stock has
doubled since early 2009 and climbed steadily this year as other
technology companies foundered.
Adding to investor disappointment was that IBM only backed its
full-year earnings view, rather than raising it, for the first time
this year. IBM continues to see operating earnings for the year of
at least $15.10 a share.
Overall, for the third quarter, IBM reported a profit of $3.82
billion, down from $3.84 billion a year earlier. On a per-share
basis, earnings rose to $3.33 from $3.19 a year earlier, as the
latest period had fewer shares outstanding.
Operating earnings, which exclude retirement-plan costs and
amortization, rose to $3.62 a share from $3.28 a share. Analysts
polled by Thomson Reuters had predicted earnings of $3.61 a
share.
Revenue slid 5.4% to $24.75 billion, or a decline of about 2%
when adjusted for currency fluctuations. Analysts were expecting
revenue of $25.36 billion, marking the fifth straight quarter that
IBM has missed the average revenue estimate from analysts.
Gross margin widened to 47.4% from 46.5%.
Revenue in IBM's systems-and-technology unit, which includes its
hardware business, decreased 13%. The unit has now seen
year-over-year revenue declines for four straight quarters amid
tough year-ago comparisons.
The software segment's revenue slipped 0.9%. Software had been a
key driver for IBM in prior quarters, but the segment recorded flat
year-over-year revenue in the second quarter.
Technology services revenue was down 3.9%, while business
services revenue declined 6%.
Services backlog rose to $138 billion from $136 billion in the
second quarter.
--Nathalie Tadena contributed to this report.
Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com