IBM sees Q3 revenue headwinds, earnings solid

Big Blue said that sales declined across its key units in third quarter, but maintains its 2012 earnings outlook.

IBM reported third quarter earnings that were better than expected, but sales fell short of expectations as revenue declined across key units.

The company reported third quarter earnings of $3.8 billion, or $3.33 a share, on revenue of $24.7 billion, down 5 percent from a year ago. Non-GAAP earnings in the third quarter were $3.62 a share.

Wall Street was expecting IBM to report earnings of $3.61 a share on revenue of $25.36 billion. IBM did note that the divestiture of its retail stores solutions unit cut revenue by 1 percent.

IBM reiterated that the company will report 2012 operating earnings of at least $15.10 a share. Wall Street currently expects earnings of $15.15 a share.

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

When I look at our skew of business in the quarter, through the first two months, our revenue was fairly consistent with our second quarter performance. The third month of the quarter was more challenging.

He added:

If you look at the third quarter performance, we did start off the first two months of the quarter on a stronger trajectory than we saw for the full quarter, as we saw a falloff in growth rates at the third month of the quarter. Within that third-month phenomena, if you look at it from a brand perspective, it was really a fall-off that we saw in our global business services business, No. 1, and our software business, No. 2. And from a geographic perspective, it was really a fall-off that we saw in North America and our growth markets unit.



CEO Ginni Rometty said IBM was upbeat about its new product lineup, which includes a new mainframe and a bevy of systems with analytics built in.

By the numbers:

  • IBM's Americas revenue in the third quarter was $10.4 billion, down 4 percent. Sales in Europe, Middle East and Africa was $7.2 billion, down 9 percent. Asia-Pacific revenue was up 1 percent to $6.5 billion.
  • Growth markets including BRIC countries were up 4 percent in the quarter. Brazil was the laggard.
  • Global technology services revenue and global business services sales were down 4 percent and 6 percent, respectively.
  • Software revenue was $5.8 billion, down 1 percent. Sales of IBM's middleware products---WebSphere, Information Management, Tivoli, Lotus and Rational---were down 1 percent to $3.6 billion.
  • Hardware revenue was down 13 percent to $3.9 billion. IBM saw revenue from System x, System z and Power Systems all fall. 

Loughridge said:

Our systems and technology revenue declined each month, though performance in September improved, as we introduced our next generation System Z.