IBM's 3Q Earnings Flat as Revenues Dip 5 Percent

 
 
By Darryl K. Taft  |  Posted 2012-10-16
 
 
 

IBM (NYSE: IBM) announced third-quarter revenue of $24.7 billion, down 5 percent from the same quarter last year.

Despite the dip in revenue, IBM delivered net income of $3.9 billion, which indicates flat growth compared with the same period a year ago. Bright spots for IBM in the third quarter included Smarter Planet, cloud and business analytics. IBM’s Smarter Planet revenue rose more than 20 percent, cloud revenue year-to-date has exceeded the full-year 2011 revenue, and business analytics revenue rose 14 percent.

However, typically strong segments like software and services were down for Big Blue in the third quarter. Software revenue dipped 1 percent, and services revenue dropped 5 percent. Meanwhile, IBM’s Systems and Technology revenue was down 13 percent.

"In the third quarter, we continued to drive margin, profit and earnings growth through our focus on higher-value businesses, strategic growth initiatives and productivity," said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement. "Looking ahead, we see good opportunity with a strong product lineup heading into this quarter and annuity businesses that provide a solid base of revenue, profit and cash. We are reiterating our full-year 2012 operating earnings per share expectation of at least $15.10."

Revenue from IBM’s Software segment was $5.8 billion, down 1 percent from the third quarter of 2011. Revenue from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, was $3.6 billion, down 1 percent from the third quarter of 2011. Operating systems revenue of $597 million was flat compared with the prior-year quarter.

Revenue from the WebSphere family of software products increased 2 percent year-over-year. Information Management software revenue decreased 1 percent. Revenue from Tivoli software increased 5 percent. Revenue from Lotus software decreased 10 percent, and Rational software decreased 16 percent, IBM said.

“We continue to see value shifting to software,” said Mark Loughridge, senior vice president and chief financial officer for Finance and Enterprise Transformation, in an Oct.16 call with analysts to announce IBM’s financial results.

Loughridge said some of the biggest blows to IBM’s growth in the third quarter were shortfalls in IBM Global Business Services, software, sales in the Americas region and the IBM Growth Market Unit, or GMU. “One thing that affected us was some software deals that fell out at the end of the quarter and rolled to the fourth quarter,” he said.

Global Technology Services segment revenue decreased 4 percent to $9.9 billion. And Global Business Services segment revenue was down 6 percent to $4.5 billion. The estimated services backlog at Sept. 30 was $138 billion, up 1 percent year-over-year, at actual rates, IBM said.

Meanwhile, revenue from the Systems and Technology segment totaled $3.9 billion for the quarter, down 13 percent from the third quarter of 2011. Excluding Retail Store Solutions (RSS), which IBM announced plans to sell in April, revenue was down 11 percent. Total systems revenue, excluding RSS, decreased 8 percent. Revenue from Power Systems was down 2 percent from the comparable 2011 period. Revenue from System x dropped 5 percent. Revenue from System z mainframe server products decreased 20 percent from the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 2 percent. Revenue from System Storage decreased 10 percent. Revenue from Retail Store Solutions decreased 79 percent year-over-year as a result of the divestiture in the quarter. And revenue from the Microelectronics OEM business decreased 25 percent.

Geographically, IBM’s Americas' third-quarter revenue was $10.4 billion, a decrease of 4 percent from the 2011 period. Revenue from Europe/Middle East/Africa was $7.2 billion, down 9 percent. Asia-Pacific revenue increased 1 percent to $6.5 billion. OEM revenue was $538 million, down 28 percent from the 2011 third quarter.

And typically a source of growth for IBM, revenue from the company's growth markets decreased 1 percent. However, revenue in the BRIC countries—Brazil, Russia, India and China—increased 4 percent.

However, Loughridge said he expects to see a boost to IBM’s bottom line from new System z, Power Systems and PureSystems that were announced in the third quarter and more recently.

“The big announcement for the quarter is the new z System,” Loughridge said.

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