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IBM Gives Disappointing Forecast
Revenue Declines for 11th Straight Quarter to End 2014
International Business Machines Corp. capped a tough year with further declines in quarterly profit and revenue, signaling that bets on new businesses won’t pay off quickly.
The technology giant, along with fourth-quarter results, on Tuesday issued a highly anticipated profit forecast that fell below Wall Street’s expectations.
Big Blue, facing problems that include slowdowns in software and services, last October abandoned a long-held target of earning at least $20 a share in 2015. On Tuesday, IBM forecast earnings for 2015 of $15.75 to $16.50 per share, below the $16.51 per share average estimate on Wall Street.
The company’s stock slid 2% in after-hours trading.
Virginia Rometty, IBM’s chief executive, has pushed the company to focus investments on what she calls “strategic imperatives.” Those include cloud services, analytics technology, security and businesses related to mobile devices and social networks, which collectively grew 16% to $25 billion in 2014, the company said.
“In 2014 we made tremendous progress,” said Martin Schroeter,IBM’s chief financial officer.
But the company faces headwinds affecting the remainder of its operations—particularly a rise in the value of the dollar versus foreign currencies, reducing the value of revenue IBM takes in abroad and converts to U.S. currency.
Mr. Schroeter said the company over the long-term expects revenue to begin growing at “low single-digit” percentage rates. But he said revenue won’t grow in 2015, largely because of currency effects and recent divestitures.
IBM’s net income fell 11% in the fourth quarter, though profit excluding one-time items easily beat analyst expectations. Its revenue fell 12%, however, dropping below Wall Street predictions and marking the 11th consecutive quarter IBM has failed to report a revenue increase.
The computing pioneer, originally known for big mainframe systems, has gradually reduced its reliance on hardware by emphasizing a collection of services and software offerings. It continued that strategy in 2014, announcing deals to sell its commodity server business to Lenovo Group Ltd. and pay Globalfoundries Inc. to take over IBM’s semiconductor manufacturing business.
Those actions contributed to IBM’s reduction in revenue, Mr. Schroeter said, but had the positive effect of removing operations that weren’t contributing to IBM’s profit.
The company faces remaining hardware pressures, however. Sales of servers based on a technology IBM calls Power, as well as mainframe systems, have declined as customers waited for new models.
Both lines have now been updated, including a new mainframe called the z13, but the results haven’t showed up yet in IBM’s income statement. Revenue from Power systems declined 13% in the fourth quarter, while mainframe revenues were off 26%.
IBM, while expecting more revenue from fast-growing areas such as online software, has seen its older services business slow down. On Tuesday, IBM said revenue from its global technology services segment fell 7.6% from the year-earlier period to $9.17 billion, while the global business service segment logged an 8.4% drop to $4.35 billion.
Software revenue, meanwhile, has been hurt by factors such as a decline in revenue from operating systems that were sold as part of the divested commodity server business. Revenue from software declined 6.9% to $7.58 billion in the latest quarter.
Overall, IBM reported earnings of $5.48 billion, or $5.51 a share, down from $6.19 billion, or $5.73 a share, a year earlier. Excluding acquisition- and retirement-related costs, profit from continuing operations was $5.81 a share. Total revenue fell to $24.11 billion from $27.39 billion.
Analysts expected $5.41 a share on $24.77 billion in revenue, according to Thomson Reuters.
IBM’s fourth-quarter results included a $580 million charge to cover costs of “rebalancing” the workforce, shedding some employees to make way for others with new skills, Mr. Schroeter said. In all, though, IBM hired about 45,000 people in 2014 and has about 15,000 jobs open, he said. The company hasn’t provided an updated number yet for its total head count.
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