Hardware sector to remain a drag on IBM as quarterly revenue hits 5-year low

PUBLISHED : Friday, 18 April, 2014, 1:17am
UPDATED : Friday, 18 April, 2014, 1:17am

IBM reported its lowest quarterly revenue in five years as the firm struggles with falling demand for its storage and server products.

Revenue dropped 4 per cent to US$22.5 billion in the first quarter, below analysts' average estimate of US$22.91 billion.

"They have had eight revenue declines in a row. They have missed so many times it's hard to keep track of it," said Fred Hickey, editor of The High-Tech Strategist newsletter.

The revenue was the lowest since the first quarter of 2009, when it was US$21.71 billion. Revenue from the hardware business, which includes servers and systems storage, slipped 23 per cent to US$2.4 billion.

They sell one business after the next. That is not a way to grow

IBM has been restructuring its business, with job reductions and the sale of its low-end server business to Chinese personal-computer maker Lenovo for US$2.3 billion in January, in efforts to achieve its targeted operating earnings of US$20 per share by 2015.

The company reiterated on Wednesday its full-year operating earnings target of US$18 per share.

"They used to be a leader. Now they sell one business after the next. That is not a way to grow," said Hickey, who has followed IBM for 30 years.

IBM warned that its hardware business might continue to face hurdles.

"As we look to the balance of 2014, we continue to expect good performance in the key growth areas, though our overall revenue growth will be impacted by the challenges in our hardware business," chief financial officer Martin Schroeter said on a conference call.

Revenue in the Americas fell 4 per cent, while revenue dropped 12 per cent in Asia-Pacific and declined 11 per cent in emerging markets such as Brazil, Russia, India and China.

Software was the only major business to show some growth, with revenue rising 1.6 per cent to US$5.66 billion, but the growth rate was slower than the 2.8 per cent posted in the fourth quarter.

Last month, technology research firm Gartner reported that IBM lost its spot as the world's No2 software maker behind Microsoft. Oracle claimed that spot, which IBM had held for years.

"They are not yet getting the kind of lift-off of software that they would need to pump up overall IBM revenues into positive growth territory," Forrester analyst Andrew Bartels said.

IBM plans to spend more than US$1.2 billion expanding its web-based software products, better known as cloud computing. It said its cloud revenue grew more than 50 per cent in the quarter. The annual run rate of cloud delivered as a service doubled from last year to US$2.3 billion.

Moving to the cloud allows businesses to cut costs by ditching bulky servers for network-based software and using remote data centres run by technology companies.

Recently, IBM has bought two companies to expand its cloud business - Silverpop, a developer of cloud-based marketing software, and cloud-based database software startup Cloudant.