IBM misses revenue targets for 4th straight quarter after stumbling in China

Jan 22 2014, 11:35 IST
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IBM is expanding into higher-margin software and cloud computing services as its hardware business sputters. IBM is expanding into higher-margin software and cloud computing services as its hardware business sputters.
SummaryIBM CEO Ginni Rometty and her team will forego their annual incentive payments for 2013.

IBM missed revenue expectations for the fourth straight quarter as it grappled with weakening demand for servers and storage in emerging markets such as China.

Shares in the world's largest technology services company fell 3.5 percent to $181.68 in after-hours trade.

Chief Executive Officer Ginni Rometty and her team will forego their annual incentive payments for 2013 as IBM failed to increase revenue. Particularly in China, the government-owned corporations that IBM relies on for a large chunk of revenue are putting the brakes on IT spending.

China accounts for about 5 percent of IBM's business, about 40 percent of which is hardware sales. The country's economy, the world's second largest, is tough to read, executives said. A new government headed by Xi Jinping is spearheading significant structural reforms that are affecting state-owned companies.

"China is going through a very significant economic set of reforms," IBM Chief Financial Officer Martin Schroeder told analysts. "While they have slowed, we don't think that this opportunity has gone away."

"We'll be on a trajectory to growth as we exit 2014 and we're comfortable that we get back to mid-single digits across the growth market regions by the end of the year."

IBM, for years a tech-infrastructure provider of choice for large corporations and government agencies, is expanding into higher-margin software and cloud computing services as its hardware business sputters.

Revenue in that business, which includes server and storage products, fell for the ninth straight quarter as more companies switched to the cloud from traditional infrastructure.

Sources said IBM and China's Lenovo have revived discussions about a sale of Big Blue's low-end server unit, though executives did not mention that on Tuesday.

Some analysts said a backlash against U.S. government spying in emerging economies contributed to plummeting demand at IBM. Asia-Pacific revenue fell 16 percent, while that from Brazil, Russia, India and China fell 14 percent in the quarter.

"Their growth markets were everything but growth," Forrester analyst Andrew Bartels said. "They have had quite a bit of success with sales of hardware in these emerging markets, but these markets are not doing well. They're facing competition in those markets."

IBM forecast that full-year 2014 adjusted profit would beat analysts' expectations and also affirmed its 2015 target for operating earnings of at least $20 per share. Some analysts said they thought IBM would need to grow non-hardware revenue substantially to hit that mark.

Edward Jones analyst Josh Olson told Reuters the company would need solid performance in

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