IBM Revenue Slide Continues, $1B Restructuring Charge Expected

IBM's revenue dips below targets for consecutive quarters as hardware sales fall, execs forgo bonuses and a $1 billion restructuring charge is in the works.

Once again, IBM missed its earnings targets as its fourth-quarter 2013 revenue dipped 5 percent, marking the fourth quarter in a row Big Blue has missed and the seventh consecutive quarter the company’s revenue has fallen.

Hit hard by shortfalls in hardware sales – IBM’s Systems and Technology revenue declined 26 percent, the company announced that top executives would forgo their 2013 bonuses. The company also plans to take a restructuring charge of $1 billion in the first quarter of 2014.

"We continued to drive strong results across much of our portfolio and again grew earnings per share in 2013,” said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement. “While we made solid progress in businesses that are powering our future, in view of the company’s overall full year results, my senior team and I have recommended that we forgo our personal annual incentive payments for 2013.”

Fourth-quarter net income, which includes benefits from tax audit settlements, was $6.2 billion compared with $5.8 billion in the fourth quarter of 2012, an increase of 6 percent, IBM said. Fourth-quarter revenues were down 5 percent to $27.7 billion and full-year 2013 revenues were also down 5 percent to $99.8 billion.

“It was an obviously disappointing but odd quarter in many ways, with decent to good growth in high margin software segments undercut by flat or poor performance in global services and a nasty drop across the hardware portfolio,” said Charles King, principal analyst at Pund-IT. “At least some of the hardware problems are due to seasonal slowdowns and to dropping mainframe sales -- as the pool of potential system upgrade customers dries up. But IBM Power Systems continues to be on an alarming downward slope, reflecting continuing troubles across the greater UNIX market that IBM has largely been immune to. Finally, there were significant losses in AsiaPac and growth markets, especially the BRIC [Brazil, Russia, India and China] countries. What’s especially painful about this point is that those regions have often been bright spots in past IBM earnings reports.”

Meanwhile, IBM continues its effort to shift its focus to higher value opportunities such as business analytics, cloud computing and its Smarter Planet initiative.

”As we enter 2014, we will continue to transform our business and invest aggressively in the areas that will drive growth and higher value,” Rometty said. “We remain on track toward our 2015 roadmap for operating EPS [earnings per share] of at least $20, a step in our long-term strategy of industry leadership and continuous transformation.”

Yet, for the fourth quarter of 2013, IBM’s revenues from the Systems and Technology Group (STG) segment were $4.3 billion for the quarter, down 26 percent from the fourth quarter of 2012. Total systems revenues decreased 25 percent. Revenues from System z mainframe server products decreased 37 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 26 percent versus the prior year. Revenues from Power Systems decreased 31 percent compared with the 2012 period. Revenues from System x decreased 16 percent and revenues from System Storage decreased 13 percent. Revenues from Microelectronics OEM decreased 33 percent. IBM is reportedly in talks to sell off its System x business.

“Hardware continued to impact our overall performance,” said Martin Schroeter, IBM’s senior vice president and chief financial officer, during IBM’s Q4 earnings call. “We’re dealing with some challenges in our hardware business models specific to Power, storage and x86. As expected, in System z we’re impacted by the product cycle, as we wrapped on very strong performance from a year ago. Together, these dynamics significantly impacted our revenue growth, and profit.”