IBM Sees Hardware Decline in Q3
China has been a particularly troublesome area for IBM this quarter. “China was down 22,” Loughridge said. He said China typically accounts for at least 5 percent of IBM’s revenue, and 40 percent of that is hardware. “We experienced a slowdown in demand across the board, but most significantly in hardware which was down about 40 percent,” Loughridge said. “While we had some execution problems during the third quarter, we were impacted by the process surrounding China’s development of a broad-based economic reform plan, which will be available mid-November. In the meantime, demand from state-owned enterprises and public sector has slowed significantly, as decision-making and procurement cycles lengthened. We believe the changes will take time to implement and do not expect demand in China to pick up until after first quarter of next year.” In other segments, IBM’s Global Technology Services segment revenues decreased 4 percent to $9.5 billion, and Global Business Services segment revenues were flat at $4.6 billion.Revenues from the WebSphere family of software products were flat year-over-year. Information Management software revenues increased 2 percent. Revenues from Tivoli software increased 2 percent. Revenues from Social Workforce Solutions increased 14 percent, and Rational software increased 12 percent. Overall, Loughridge was optimistic. “Across IBM, we delivered strong performance in our growth initiatives that address key market trends–Smarter Planet, business analytics and cloud–leveraging both organic investments and acquisitions,” he said. “Our Smarter Planet solutions are up more than 20 percent through September, and business analytics is up 8 percent year to date. In cloud, we closed the acquisition of SoftLayer in July, which significantly improves our capabilities in public and hybrid cloud. For the first time, we delivered more than $1 billion of cloud revenue in a quarter, of which about $460 million is delivered as a cloud service. Through the first three quarters, our cloud revenue is up more than 70 percent year-to-year.” However, Geoff Woollacott, a senior analyst at Technology Business Research, said, “IBM is not immune to the overarching disruptions to core revenue streams cloud technology accelerates.” Woollacott added, “IBM also stated cloud revenue surpassed the $1 billion mark for the first time on a quarterly basis, with $460 million coming from 'as-a-service' revenue streams. Reporting clarity will improve going forward both due to its strategic importance to IBM and due to the external concerns being raised by the SEC on the reporting metrics.”
Revenues from the company’s software segment were $5.8 billion, up 1 percent compared with the third quarter of 2012. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Social Workforce Solutions and Rational products, were $3.7 billion, up 3 percent versus the third quarter of 2012. Operating systems revenues of $576 million were down 4 percent (down 2 percent, adjusting for currency) compared with the prior-year quarter.