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

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.

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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

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7 comments
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  • It's the "post mainframe" era...

    I know, bad pun...I couldn't resist though!
    wizard57m-cnet
  • Hardware Losing Money, Software, Services & Finance Raking It In

    Some rumours IBM may be selling off its x86 server business to Lenovo, to join its old PC business.

    Seems there's just no money in any kind of x86-based hardware for anybody except the chip supplier: Intel.
    ldo17
    • Anybody notice there was also a huge 32% drop in Power Systems revenue Y/Y?

      Whats interesting is no one is talking about the double-digit decline in Power servers (-32%) and IBM storage (-11%) and these were NOT enough to offset positive System z and PureSystems growth. IBM did not even acknowledge rumors of plans to sell off its x86 server business!?? Whats going on here? Maybe Oracle is taking IBM marketshare? Oracle Engineered Systems growth is strong, SPARC T4 servers are up, SPARC T5 and SPARC M5 servers just announced. Sounds like customers have put IBM orders on hold or switched...

      Power systems experienced a huge -32% decline y/y, which does not bode well given the comparison against only flat revenues the year prior and given this is the second straight quarter of double-digit decline for POWER (-19% in Q4-2012, historically a strong quarter for IBM).

      IBM did not satisfactorily explain the reason for the revenue decline beyond “transition to Power7+”, challenges in the HPC space, and some allusion to a slowdown in demand for low-end/midrange products (to explain HW declines in China). IBM indeed just introduced the final members of its Power7+ portfolio in February which happened to be entry and low-midrange models.

      However, Power7+ high end systems have been shipping since last Fall so Q1 represents a full quarter of potential shipments. Clearly some other dynamics are at work to result in a record decline for Power systems this quarter.

      IBM Power7+ is the THIRD major transition/upgrade in 3-year’s time (first POWER7 systems in 2010, a “retrofit” in 2011, then Power7+ in 2012). The full-year delay for P7+ also pushed out Power8 to 2014. IBM’s installed base may be saturated with “upgrade fatigue”, and those who have not transitioned already may be considering platform alternatives or choosing to wait for P8, especially given the relatively poor incremental gains that come from each generation (e.g., only 10% per core gain going from P7 to P7+ per IBM rPerfs).
      PhilD64
  • Re:

    I think it may not be just "shortfall in sales execution" for mainframe.It may need a little tweaking of its strategy. It has to speak to right executives and revamp its strategy.Company does have many great products, services.

    "Disclaimer: This article is based on the up-to-date knowledge of the author and with no liability. Please contact author directly for any questions."
    gj2011
  • IBM's reaction to good new AND bad news alike

    Cut "headcount" (otherwise known as "employees" (with actual lives, families, debt, interests, expectations, plans, futures, but, apparently, I digress). I was one of those, and was cut 19 years ago. I do NOT miss IBM.).
    lko2181
  • Comment 4451T.hlB4

    This had nothing to do with them not being PRISM compliant ....
    NSAagent868
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