IBM's Q3 mixed, hardware business thumped

IBM's earnings were better than expected for the third quarter, but sales fell short. The systems and technology division saw sales fall 19 percent from a year ago.
Written by Larry Dignan, Contributor

IBM delivered mixed third quarter results with earnings that were better than expectations and sales that came in light as the company's hardware business took a hit.

The company reported third quarter earnings of $4 billion, or $3.68 a share, on revenue of $23.7 billion, down 4 percent. Non-GAAP earnings for the third quarter were $3.99 a share.

Wall Street was expecting IBM to report non-GAAP third quarter earnings of $3.96 a share on revenue of $24.75 billion.

As for the outlook, IBM maintained its annual non-GAAP earnings projections of at least $16.25 a share and $16.90 a share excluding a restructuring charge from the second quarter. IBM said that 2013 net earnings will be at least $15.01 a share.

By unit, IBM's systems and technology business took the biggest hit with sales falling 19 percent. IBM said Power Systems revenue was down 38 percent and System x sales fell 18 percent.

ibm3q units
ibm hardware sales q313

Software revenue was up 1 percent and services revenue fell 3 percent in the third quarter. Growth markets sales fell 9 percent in the third quarter.

IBM did note that cloud revenue was up more than 70 percent year to date and third quarter sales topped $1 billion. Of that sum, $460 million was cloud services.

In a statement, IBM CEO Ginni Rometty said that the company is a work in progress as it pursues businesses focused on cloud, mobile, analytics and security while still trying to garner returns from struggling units.

By region, IBM took the biggest hit in Asia Pacific as third quarter sales fell 15 percent to $5.5 billion. Americas revenue fell 1 percent to $10.3 billion. Europe, Middle East and Africa sales were up 1 percent to $7.3 billion.

On a conference call with analysts, IBM CFO Mark Loughridge noted a bevy of moving parts:

  • This is the first quarter for IBM where mature markets outperformed the emerging markets in growth.
  • Margins were helped by second quarter layoffs, "tough minded spending actions" and a lowr tax rate of about 23 percent. In other words, IBM had a few earnings balls bounce its way.
  • Western Europe showed stability, but Eastern Europe, notably Russia, saw sales drops.
  • China was a big problem for IBM's hardware business. Loughridge said:

Our performance in growth markets was driven about half by execution and half by a pause as China moves through the process to develop its new economic plans. China was down 22%. We experienced a slowdown in demand across the board, but most significantly in hardware, which was down about 40% and which makes up about 40% of our business in China. While we had some execution problems during the third quarter, we were impacted by the process surrounding Chinas' development of a broad-based economic reform plan which will be available mid-November. In the meantime, demand from state owned enterprises and public sector has slowed significantly as decision making and procurement cycles lengthened. We believe the changes will take time to implement and do not expect demand in China to pick up until after the first quarter of next year.

  • 2,000 PureSystems were shipped in the third quarter and IBM has 8,000 in the field since the systems launched. 
ibm revenue by geography q313
ibm revenue by industry q313



Editorial standards