IBM's one-day tumble: Tough quarter or fluctuating dollar?
The perfect storm may be brewing for Big Blue. Clearly, the economy is slowing. Also, the impact of Wall Street’s activity this week, as well as the troubled financial sector that IBM serves, could start to trickle down. And, the dollar is fluctuating. As a result, IBM’s stock dropped by as much as 7.7 percent in single-day trading on Tuesday, recovering slightly to end the day at $110.13, a decline of almost 6 percent.
According to Reuters, the drop stems from speculation that IBM missed its targets for the quarter that ended Sept. 30. The biggest worry: A greater-than-expected impact of the fluctuating dollar, compared to the euro and other currencies. Reuters reports:
Sanford Bernstein & Co said in an e-mail to clients that the stock was falling partly on speculation that IBM's investor relations staff was urging Wall Street analysts to lower their estimates for the company's quarterly results. "(This is) not confirmed and (we are) skeptical of this," Sanford Bernstein technology sector specialist said in the e-mail.
The company, which reports quarterly earnings on October 16, isn’t commenting on the rumors.
It is true, however, that Wall Street analysts are reducing their revenue estimates – but more because of currency fluctuations. As the dollar has grown stronger, tech bellwethers like IBM who do business overseas lose the financial gain of a weak dollar. In a post back in August, my colleague Larry Dignan saw this coming and explained the implications
A weak dollar has helped technology giants such as Google, Amazon, eBay, IBM, HP and others even as the U.S. economy slows. Here’s how it works: These companies with significant international operations collect revenue in other currencies such as the euro and then convert earnings into dollars. Voila. Your growth rate looks much better. Conversely, a weak dollar acts as a headwind for a company based abroad like SAP.
Last week, BMO Capital Markets reduced its revenue forecast to $26.1 billion for the quarter the quarter that just ended, down from its $26.9 billion forecast. Wall Street is expecting $26.8 billion.
In a few more weeks we'll know where IBM stands.
Previous coverage: IBM: Big Blue beats expectations; raises full year guidance