IBM sales drop in third quarter

IBM, the largest technology services company worldwide, reported a 4% fall for the third quarter of 2013.

Amid decline in hardware in emerging markets, experts had expected a fall, but less than 4%.

Wall street had expected IBM sales to drop to $24.74 billion, instead of the company’s reported $23.7 billion.

Diluted earnings per share for Q3 2013 were $3.68, compared to $3.33 in Q3 2012, an increase of 11%.

IBM sales in its hardware division felll by 17% in Q3 2013.

This is the seventh consecutive quarter that IBM sales have not risen.

However, net income rose by 6% during Q3 2013 to $4 billion.

Mark Loughridge, IBM’s Chief Financial Officer, said that third quarters are never the best for technology service providers. However, he acknowledged that IBM faced greater challenges this year.

As software replaces traditional infrastructure, the demand for hardware has been progressively falling. IBM says it is reacting to this shift in the market by concentrating more on software business.

Loughridge explained that hardware in China accounts for approximately 5% of its business, and nearly half of all that business is hardware. China has slowed down considerably this year as far as IBM is concerned.

Loughridge said “As far as the growth markets are concerned, we will be dealing with the China impact for another couple of quarters.”

Ginni Rometty, IBM chairman, president and chief executive officer, said:

“In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue. Where we had identified high growth opportunities and pursued them aggressively – cloud, mobile, business analytics, and security – we continued to show strong growth. This underscores our strategy to continuously transform the company to high value.”

“We are taking action to improve execution in our growth markets unit and in the elements of our hardware businesses that are under performing. Given these actions, our strategic initiatives and the strength of our model, we are maintaining our view for the full year and remain confident in our ability to achieve at least $20 operating EPS in 2015.”

Geographic regions – IBM sales for 3rd quarter 2013

Below are some highlighted data regarding IBM revenue in different parts of the world:

  • The Americas – $10.3 billion. A fall of 1% (flat, adjusting for currency) compared to Q3 2012.
  • Europe, Middle East and Africa – $7.3 billion. An increase of 1% (down 2% adjusting for currency) compared to Q3 2012.
  • Asia-Pacific – $5.5 billion. A fall of 15% (4% fall adjusting for currency).

OEM (original equipment manufacturers) revenue dropped 1% compared to the same period in 2013 to $534 million (flat adjusting for currency).

Shares in IBM fell 6% in after hours trading to $175.56.

IBM’s slide down the Fortune 500

According to the Fortune 500 list, in 1982 IBM was the 8th largest company in the world, and the 20th in 2013.