April 18, 2013 9:41 pm

IBM vows action following rare miss

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Virginia 'Ginni' Rometty©Bloomberg

IBM posted a rare miss on Wall Street forecasts on both revenues and profit on Thursday, but insisted it would take action this year to make up lost ground.

After completing her first year as chief executive, Ginni Rometty admitted the IT bellwether “did not achieve all of our goals” in the three months ending on March 31. As a result, IBM plans to bring forward a workforce restructuring to the current quarter and may divest certain businesses.

One large deal on the table – which could be worth billions of dollars – is the sale of its low-end server business, according to sources familiar with the discussions.

Operating earnings of $3 a share came in below analysts’ forecasts of $3.05, while total revenues fell 5 per cent from the same period last year to $23.4bn, undershooting Wall Street’s $24.7bn estimate.

The miss is only IBM’s second in the past decade, after underperforming in the first quarter of 2005.

“Despite a solid start and good client demand we did not close a number of software and mainframe transactions that have moved into the second quarter,” Ms Rometty said. About $400m of these highly profitable deals were delayed, IBM said, although some have since been closed.

“In addition to closing those transactions, we expect to benefit from investments we are making in our growth initiatives and from the actions we are taking to improve underperforming parts of the business,” she added.

Although she said IBM was still on track to meet its full-year and long-term targets, the stock fell 4 per cent in after-hours trading.

Last month, another enterprise technology bellwether, Oracle, also disappointed Wall Street after it failed to close some sales deals.

On a conference call with analysts, Mark Loughridge, IBM’s chief finance officer, blamed factors as varied as the weak yen, Chinese leadership changes and an earlier Easter holiday for its miss.

But in a rare admission from a company that prides itself on resilience in any economic climate, he also acknowledged that a “shortfall in sales execution” was partly responsible.

“There are parts of our business in transition, that have been underperforming, that are going to take some time to recover,” he added, referring to power and storage lines.

Currency fluctuations meant that even revenues in IBM’s so-called “growth” markets fell 1 per cent, including in China and Russia.

Net income, on the GAAP accounting basis, fell 1 per cent over the previous year to $3bn but gross profit margin increased 0.6 points to 45.6 per cent.

Sales in IBM’s services business, its largest source of revenue, fell 4 per cent to $9.6bn.

Hardware revenues tumbled 17 per cent to $3bn. Sources said that its commodity “x86” server business, which accounts for about a third of its server revenues but contributes little profit, could fetch a multibillion-dollar price tag if sold, with Lenovo in the frame as the most probable buyer, alongside another possible bidder.

IBM declined to comment on the talks, which were earlier reported by CRN, a specialist IT news site.

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