IBM's Q1 closes weak as software, mainframe deals slip

Summary:IBM saw demand drop off at the end of the first quarter as revenue and earnings miss expectations. Other tech giants saw a similar tough finish to the quarter.

IBM's first quarter fell short of expectations as deals slipped into the second quarter. IBM's comments about a poor finish to the first quarter are becoming a common refrain among enterprise technology companies.

The company reported first quarter earnings of $3 billion, or $2.70 a share, on revenue of $23.4 billion, down 5 percent from a year ago. Non-GAAP earnings for the first quarter were $3 a share.

IBM was expected to report first quarter earnings of $3.05 a share on revenue of $24.62 billion.

CEO Ginni Rometty said that the company saw a strong start to the quarter, but "we did not close a number of software and mainframe transactions that have moved into the second quarter."

Rometty is making comments similar to other vendors who saw demand fall off at the end of the quarter. Both Oracle and Tibco said they saw similar drop-offs, but blamed sales execution.

IBM said that it will deliver 2013 non-GAAP earnings per share of at least $16.70. Wall Street is looking for $16.77 a share.

On a conference call with analysts, IBM CFO Mark Loughridge said:

We had solid profit performance in January, but as the quarter ended, hundreds of millions of dollars of very profitable software and systems Z mainframe deals fell short of the goal line. This impacted the first quarter close, but the rollover of these deals positions us for a strong start in our software and mainframe business in the second quarter.

Loughridge said IBM had a "shortfall in sales execution" for mainframe and software but other areas were strong. Cloud growth was 70 percent and analytics revenue was up 7 percent.

Nevertheless, IBM said it would cut workers. Loughridge added:

Given our first quarter performance, we now expect to take the bulk of our work force balancing actions for the year in the second quarter. As opposed to last year when it was distributed across the quarters.

IBM saw revenue decline in all regions. Revenue in the Americas was $10 billion, down 4 percent from a year ago. Revenue in EMEA was $7.3 billion in the first quarter, down 4 percent. Asia-Pacific revenue fell 7 percent to $5.7 billion. Even growth markets such as  BRIC countries---Brazil, Russia, India and China--- fell 1 percent.

Loughridge said that there were pockets of strength in regions. Japan revenue was up 3 percent as was Brazil. Most regions were off though. "China's performance was impacted by weakness in large deals and a slowdown in our low end and midrange products," he said. 

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By division, IBM's services backlog in the first quarter was $141 billion, up 1 percent. But services revenue overall fell. Software revenue was flat. Hardware revenue fell 17 percent.

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Topics: Cloud, Data Centers, Hardware, IBM, Servers, Software

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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