IBM's fourth quarter results were a mixed bag as the company’s earnings were better than expected, but revenue missed estimates as hardware sales tanked.
For the fourth quarter, IBM reported earnings of $6.2 billion, or $5.73 a share, on revenue of $27.7 billion, down 5 percent from a year ago. Non-GAAP earnings for the fourth quarter was $6.13 a share.
Wall Street was looking for non-GAAP fourth quarter earnings of $5.99 a share on revenue of $28.25 billion. IBM missed its revenue targets every quarter in 2013.
For 2013, IBM reported earnings of $16.5 billion, or $14.94 a share, on revenue of $99.8 billion, down 5 percent.
As for the outlook, IBM projected 2014 net income of $17 a share and non-GAAP earnings of $18 a share. Both of those projections are ahead of the $16.96 a share (GAAP) and $17.97 (non-GAAP) expected by Wall Street for 2014.
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IBM's biggest challenge is growing its up-and-coming units like Watson, analytics, e-commerce, mobile and cloud fast enough to offset its businesses that are struggling. CEO Ginni Rometty said that the executive team will forgo annual incentives since performance isn't up to expectations.
The biggest thorn in IBM's fourth quarter results is the hardware division. The systems and technology division reported operating income of $206 million, down 79 percent from a year ago, on revenue of $4.3 billion, down 26 percent from a year ago. System Z, Power Systems, System x and storage revenue was whacked.
Martin Schroeder, IBM CFO, said on an earnings conference call that the company can hit its 2015 plan to deliver at least $20 a share in operating earnings. The hardware business, however, is a drag.
In hardware we've entered the back end of the mainframe product cycle and we're dealing with some challenges in other areas. Together, these are impacting our overall results.
Technology services revenue was down 4 percent in the fourth quarter to $9.9 billion and business services sales were up 1 percent to $4.7 billion.
Among the key points from Schroeder on the conference call:
IBM's software division also had trouble growing with fourth quarter revenue of $8.1 billion, up 3 percent from a year ago. Software operating income was $4.2 billion, up 6 percent from a year ago.
By geography, IBM fared well in many regions, but took a big hit in China for the second consecutive quarter as sales fell 23 percent. Schroeder said:
The largest declines in the China were in our hardware business. We continue to be impacted by the process surrounding the implementation of a broad-based economic reform plan. While there is more clarity on the overall plan, we continue to believe that it will take some time for our business in China to improve.