IBM revenue falls further in second quarter but beats market target

PUBLISHED : Saturday, 19 July, 2014, 1:58am
UPDATED : Saturday, 19 July, 2014, 2:06am

International Business Machines Corp's second-quarter sales topped analysts' estimates, getting chief executive Ginni Rometty closer to her profit goals.

While revenue fell 2 per cent from a year earlier to US$24.4 billion - the ninth consecutive quarterly drop - declines for products like mainframe servers and markets such as Brazil and China were less severe than earlier this year, IBM said. The result surpassed the US$24.1 billion that analysts projected on average.

Adjusted earnings rose to US$4.32 a share, 1 US cent higher than analysts' estimates.

Rometty is banking on a strong second half to hit her targets for the company's performance even as IBM adapts to an industrywide shift to cloud computing, an area that expanded 50 per cent in the first six months from the same period last year.

IBM reiterated its projection for adjusted earnings of at least US$18 a share for this year. It is contending with technology customers that increasingly seek to store data and software on cloud-computing networks, rather than on site. That has limited clients' need for IBM's servers and mainframes, making it more difficult to reach profit targets.

IBM aims to reach US$20 a share in adjusted earnings next year, up from US$11.67 in 2010.

The company has faced difficulties in the Chinese market as tensions over cyberhacking have risen between China and the United States.

As Rometty tries to navigate IBM through the industry's changes, she has shifted focus to cloud services, along with data analytics, in which the company helps clients mine the digital information they collect to identify trends.

Rometty has also tried to offload less profitable businesses, like the low-end server unit that Lenovo Group agreed to buy for US$2.3 billion, pending a US national security review.

In a deal unveiled this week, IBM will help develop more than 100 mobile-centric applications for businesses catered to Apple's iPhones and iPads to help workers do more with the devices than check e-mail or calendars.

The companies foresee corporate customers increasingly using handheld devices for daily workplace tasks like supply chain management and human resources functions.

Separately, IBM is spending more than US$1 billion to create a group around its technology that lets customers use plain English to analyse large troves of data.

To remake its cloud business, Rometty bought provider SoftLayer Technologies last year for US$2 billion and this year committed an additional US$1.2 billion to bolster its data centres and offerings.

"Their success is going to be tied to the cloud over the next five to 10 years," said Daniel Ives, an analyst at FBR Capital Markets. "It's more of a strategic focus of the company."