IBM chief confident despite poor profits

PUBLISHED : Thursday, 02 May, 2013, 12:00am
UPDATED : Thursday, 02 May, 2013, 3:47am

IBM chief executive Ginni Rometty, facing more sceptical investors after the company missed quarterly earnings estimates for the first time in eight years, said she remained confident about reaching long-term profit goals.

Speaking at the company's annual meeting on Tuesday, Rometty said she was "not satisfied" with the first-quarter results.

To shape up, IBM is divesting businesses and focusing on more profitable and faster-growing areas, such as data analysis and cloud computing.

The company was still on track to meet its five-year plan for profit growth, put in place under her predecessor Sam Palmisano in 2010, Rometty said.

"It is important to understand IBM's long-term model," said Rometty, who became chief executive of the computer-services giant in January last year. "We are an innovation company. This means that we pursue continuous transformation."

IBM, famous for methodically setting and then meeting its goals, jarred shareholders on April 18 when it posted first-quarter profit of US$3 a share, missing the US$3.05 predicted by analysts. It was the first earnings shortfall since 2005. The shares tumbled almost 10 per cent over the following two trading days.

On a post-earnings conference call with analysts, chief financial officer Mark Loughridge blamed the shortfall on an "execution problem" and a failure to close contracts with customers. IBM's computer-hardware business, where sales fell 17 per cent in the period, was one of the biggest weak spots.

In a bid to get back on course, IBM would spend US$1 billion eliminating jobs in the second quarter and would divest businesses later this year, Loughridge said at the time. Gains in the second half would make up for those expenses, he said, a tip-off that a transaction may be in the works.

IBM also boosted its dividend by 12 per cent and approved US$5 billion in stock buy-backs at Tuesday's meeting.

Calvin Ford, an IBM shareholder and former employee, said he was worried about IBM reaching its 2015 earnings target of US$20 a share.

"I don't feel as comfortable as I did at the time Palmisano projected that," Ford said. "Hardware ain't going to get you there. The world economy bothers me more than anything else, and IBM has got to be looking at other opportunities for business."