October 18, 2011 12:26 am

IBM shares fall 4% on flat revenues

IBM’s flat performance in major markets and concerns about how poor economic conditions and currency shifts might affect its fourth quarter drove down shares of the technology group.

The shares fell nearly 4 per cent to $179.48 in extended trading in New York on the news, in spite of strong third-quarter growth in emerging markets for the company

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IBM reported $26.2bn in third-quarter revenues, slightly shy of Wall Street expectations of $26.3bn. Profits of $3.28 per share were ahead of analyst consensus forecasts of $3.22.

Revenues in its most significant markets were essentially flat overall year-on-year, although it posted 4 per cent growth in the US, its biggest market.

Emerging market revenues, including Brazil, Russia, India and China, grew 13 per cent, adjusting for currency fluctuations.

Expenses rose 12 per cent, however, with half of that attributed to foreign exchange and hedging policies. Analysts expect IBM to encounter currency headwinds in its global business in the fourth quarter and in 2012.

On a conference call, Mark Loughridge, chief financial officer, responded to analyst concerns about poor macroeconomic conditions by saying that he expected the fourth quarter to be very similar to the third.

Its Global Technology Services business, which grew 3 per cent in the quarter, should perform similarly, he said, while Global Business Services, whose revenues were flat, should improve.

Analysts fear that cuts in the public sector and in financial services could hurt IBM, but Mr Loughridge said financial services grew 10 per cent for IBM in the third quarter, again boosted by emerging markets growth.

“I wouldn’t look at the overall financial services sector through a major-market lens, we see a very strong book of business growing at a very rapid rate [in emerging markets],” he said.

The company raised its operating profits forecast for the year by 10 cents to $13.35 per share, up 14 per cent year on year. Mr Loughridge said he did not see difficulties ahead for the services business and there was “a very good pipeline for our software business in the fourth quarter”.

As well as its strength in emerging markets, IBM also said it was encouraged by the performance of newer strategic plays. Business analytics revenues were up 19 per cent through the first three quarters with its integrated software and consulting offering. Revenues had doubled so far this year in IBM’s “Enterprise Cloud” initiatives.

It unveiled “Smartcloud” services this month to encourage companies to move more of their data management to remote centres. Revenues were up 50 per cent for Smarter Planet, which offers data analytics to help cities run more efficiently.

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