With solid third-quarter earnings, IBM provides the tech industry with a beacon. The company's CFO says short-term signings look good to sustain growth, while insulation from reliance on financial services market revenues and exposure to tarnished financial institutions limit potential threats. Once again, IBM Software and Services lead the way to growth for Big Blue.
indicated a week before in announcing preliminary earnings, the company had a
solid third quarter, with revenues up 5 percent and profits up 20 percent over
the same period a year ago. However, it was not so much what the company said
about its current financial results during its Oct. 16 earnings call, but what
it said about why IBM's outlook will remain strong during the economic crisis
that bears the attention of the tech sector.
During the IBM earnings conference call,
Mark Loughridge, IBM's senior vice president
and chief financial officer, said there are at least three things fueling IBM's
ability to weather the storm. One is that IBM
has "confidence in the short-term signings profile and how that's going."
Indeed, Loughridge said short-term signings for IBM's
services business were up 8 percent and in the United
States up well beyond that.
Second, IBM does not pursue deals that
expose the company to risk. "We have confidence in the quality of the
deals we've signed," Loughridge said. And, third, IBM
has continued to work to "take cost out" of its entire operation,
from production to supply chain to distribution-all across the board.
Google's Q3 profits jump 23 percent. Read more here.
However, Loughridge drove home the point that perhaps the main thing buoying
IBM during the financial mess is "we
have a manageable level of exposure to financial institutions" involved in
the crisis. Indeed, in the financial services industry, Loughridge said,
"the amount of revenue IBM generates
from these institutions is only about 1 percent" of IBM's
overall revenue. Moreover, in general, IBM
draws only 7 percent of its overall revenue from the financial services sector,
Loughridge said. So IBM's exposure is
minimal, he said.
And despite the fact that periods of economic turbulence provide
opportunities for services deals with customers "looking for ways to
reduce cost, reduce capital or just to survive," some of those
opportunities are "not worth the risk," Loughridge said.
"IBM's portfolio of services,
software and hardware helps its clients ride out the wave of turmoil by
providing cost-cutting or outsourcing solutions or offering strong revenue
generation opportunities through consulting and systems integration," said
Eugene Zakharov, senior analyst of professional services at Technology Business
Research. "By focusing on business outcomes, IBM
has its skin in the game and is able the make its story very appealing to
clients who can be going through tough times."
In addition, Loughridge said IBM's own
Global Financing arm, which is used to facilitate enterprise client acquisition
of hardware, software and services, is itself insulated from the credit mess.
"We have a rock-solid booking business and a very solid customer
base," he said. Moreover, Loughridge said 97 percent of IBM
Global Financing's portfolio is in its core competency of technology financing
and has no exposure to consumers or mortgage lending.