IBM lifts target after buoyant quarter
International Business Machines, the world's largest computer-services company, raised its annual forecast after second-quarter earnings topped analysts' estimates, lifted by cost cuts and share buy-backs.
Excluding a US$1 billion restructuring expense, IBM on Wednesday said profit was US$3.91 a share in the past quarter, beating analysts' predictions of US$3.78. IBM now expects to earn at least US$16.90 a share this year, up from the US$16.70 it forecast earlier.
IBM has managed to increase profit by shifting away from low-margin businesses, cutting jobs and buying back stock - even as revenue declines. The company is betting that faster-growing areas such as cloud computing and data analysis can offset a broader slowdown in information-technology spending.
By beating earnings estimates, IBM rebounded from a rare stumble in the previous quarter, when its profit missed projections for the first time in eight years. Even so, revenue continued to decline, falling 3.3 per cent to US$24.9 billion. Sales declined in every business division other than software.
In addition to a slump in demand, currency changes took a toll on the company's results. In Japan, where the company made about 10 per cent of its sales last year, the yen fell 5 per cent against the US dollar during the quarter. The company was "significantly impacted" by the yen's weakness, chief financial officer Mark Loughridge said.
Other technology companies are suffering as well, with Intel, the world's largest chipmaker, reporting its fourth consecutive quarterly decline in revenue as customers shunned personal computers, choosing tablets and smartphones instead.
In its first quarterly earnings report under new chief executive Brian Krzanich, Intel cut its full-year revenue forecast and said it was scaling back capital spending as it adjusted to a painful contraction of personal computer sales and economic weakness in China, one of its biggest markets.
Krzanich, who took over as chief executive in May, was quick to acknowledge Intel's past errors. He said it would aggressively speed up the launch of new Atom mobile chips.
"Intel was slow to respond to the ultra-mobile PC trends," he said.
Faced with slow demand, Intel said it was cutting capital spending this year to US$11 billion, plus or minus US$500 million.
Intel posted second-quarter revenue of US$12.8 billion and net earnings of US$2 billion, or 39 US cents a share, in line with expectations. That compared with US$2.83 billion, or 54 US cents a share, in the same quarter last year.
Global shipments of personal computers dropped 11 per cent in the second quarter, the fifth consecutive quarterly decline in a market that has been devastated by the popularity of tablets.