IBM reports sluggish quarter; Australia performs badly

IBM generated less revenue in its third quarter than analysts expected

For its most recent financial quarter, IBM experienced declining revenue and flat income, though it still managed to deliver increased earnings per share. It wasn't helped by a slump in its Australian market.

In the third quarter, IBM generated $US24.7 billion in revenue, down 5 per cent from the third quarter of 2011. That fell short of analyst estimates for the quarter, which ended September 30. Analysts surveyed by Thomson Reuters had forecast $US25.36 billion in revenue.

Net income was $US3.8 billion, approximately the same as in the third quarter of 2011. Earnings rose to $US3.33 per share, an increase of 4 per cent from the third quarter of 2011.

On a conference call with financial analysts, IBM Chief Financial Officer Mark Loughridge attributed the sluggish financial performance to a variety of factors. He noted that the first two months of the quarter tracked as estimated, but September suffered from an overall slowdown in customer spending. A handful of large software deals fell through in the last month, he reported, and the company's Global Business Services unit suffered significant declines in revenue as well.

Geographically speaking, a number of markets performed badly, including the Americas and Australia. The latter was down "double digits" according to Loughbridge

Other factors contributed as well. The company paid a large one-time U.K. pension-related charge, which amounted to $US162 million. IBM paid more than $US400 million for workforce rebalancing. The company also closed the sale of its Retail Store Solutions unit to Toshiba, which resulted in an additional $US280 million of net income, though the loss of the unit decreased revenue by an unspecified amount.

For IBM, revenue in the Americas was $US10.4 billion, a 4 per cent decline from a year earlier. Revenue from Europe, the Middle East and Africa was $US7.2 billion, down 9 per cent from a year earlier. The Asia-Pacific region held steady, producing $US6.5 billion in revenue, an increase of 1 per cent compared to the third quarter from a year earlier.

In the field of services, Global Technology Services logged $US9.9 billion, a decrease of 4 per cent. Global Business Services posted $US4.5 billion in revenue, down 6 per cent from a year earlier.

Software revenue totalled $US5.8 billion, down 1 per cent from a year earlier. Revenue from IBM middleware products, such as WebSphere, Tivoli and Lotus, were down 1 per cent, to $US3.6 billion.

Revenue from the Systems and Technology division totaled $US3.9 billion for the quarter, down 13 per cent. Total revenue from systems sales and service, not including retail systems, were down 8 per cent from a year earlier. System Storage revenue decreased by 10 per cent from a year earlier.

As Loughridge had stated, the middling financial results seemed to be caused by a number of different factors, said Gartner Research vice president Chris Ambrose. Over the past few years, service clients have been shifting the way they contract work, moving to smaller contracts across multiple vendors. The slack in IBM's service results could reflect this trend, Ambrose said. The relative strength of the dollar has also dampened European IT spending.

Ambrose also wondered if customers are now lengthening their IT buying cycles as a way to cut costs. However, he said IBM did not provide enough evidence to reach a definitive conclusion. In the investor briefing, Loughridge denied this was the case.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

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