IBM is in the midst of a challenging transition, and its fourth-quarter financial results reflected that reality. The technology giant on Tuesday reported quarterly declines in both sales and profits, though its earnings were above Wall Street’s diminished expectations.
Under Virginia M Rometty, who became chief executive in 2012, IBM has been rapidly shifting its portfolio of businesses. She has initiated multibillion-dollar spending programs for data-analysis software and skills, cloud computing and Watson artificial intelligence technology — fields that promise high profits and strong growth.
At the same time, the company has sold businesses that generated several billion dollars in sales but lost money or barely broke even.
Units sold recently include its chip-manufacturing operation and its division making smaller server computers. So a falloff in IBM’s overall revenue is, for now, largely by design.
The new businesses are growing. But they are not yet large or profitable enough to offset the erosion of growth and profitability in some of IBM’s traditional hardware, software and services lines. And the new technology, like cloud computing and low-cost data analysis, often adds to the pressure on IBM’s old-line businesses.
How long the transition will take, and how painful it may be, is the question.
But it is certainly not one that will be answered by the financial results in a single quarter. And IBM’s fourth-quarter performance provides grist for both the optimist and pessimist camps that closely follow the company.
The company said net income in the quarter fell to $5.5 billion, down 11% from the same quarter a year ago. The company’s operating earnings declined to $5.81 a share, above the average estimate of analysts for $5.41 a share, as compiled by Thomson Reuters.
IBM’s revenue slid to $24.1 billion, well below the $27.7 billion in the year-earlier quarter. Its quarterly sales were somewhat below Wall Street’s consensus forecast of $24.8 billion.
In after-hours trading, IBM’s stock price slipped $2.90 a share, or about 1.9 percent, to $154.05.
In the conference call and in an interview afterward, Martin Schroeter, IBM’s chief financial officer, made the case that IBM was showing encouraging progress in its transition. The new businesses the company has earmarked for growth — data analytics, cloud, security and mobile apps for corporations — grew at a 16% rate in 2014 and contributed $25 billion in revenue, or 27% of the company’s total sales. These growth businesses, he said, should continue to expand at a double-digit rate.