IBM refocus continues to reap rewards

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Productivity improvements and the continuing reshuffling of its portfolio of technology businesses enabled IBM to boost earnings per share by 27 per cent in its latest quarter compared with a year before – faster than Wall Street had expected.

Big Blue reported on Tuesday that revenues during the first three months dropped 10 per cent from a year before to $20.7bn. Adjusting for the sale of its PC business to Lenovo, however, IBM said revenues would have been unchanged, while they would have risen by 4 per cent if further adjustments were made for currency fluctuations.

“We’ve done a lot to refocus our business model in the last couple of years to focus on high value solutions,” said Mark Loughridge, chief financial officer. Actions to improve productivity began to show through in the second half of last year and had also boosted the latest quarter, he added.

IBM’s performance was also helped by an increase in “other income”, thanks to profits from currency hedging and interest income on its cash reserves.

The latest figures point to a stronger performance at the world’s biggest technology company compared with a year ago, when a disappointing first quarter raised questions about IBM’s progress.

The technology giant singled out growth in software and its chip business – where it has become a supplier to all the leading video-game console makers – as two of the biggest factors in the improvement.

However, IBM’s overall performance was hampered by continued weakness in Japan, leading to a 2 per cent decline in revenues after adjusting for disposal of the PC business and currency changes. The latest quarter also reflected widely-expected softness in hardware sales.

While gross profit margins had improved thanks to “real discipline” in the global services division, which has been restructured, and solid performance in software, margins in the hardware business were still in need of improvement, said Mr Loughridge. “We need to just recalibrate to emphasis the high end of those businesses.”

Among its divisions, revenues from global services fell 1.2 per cent to $11.6bn, while the disposal of the PC business led to a decline in hardware sales of 32.3 per cent. Software revenues grew by 2.4 per cent, or 6 per cent adjusted for currency fluctuations, thanks to strong sales of middleware, the company said.

Net income rose 22 per cent to $1.7bn, while earnings per share were up 27 per cent to $1.08, compared to Wall Street expectations of $1.04.

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