IBM 8th Straight Quarterly Sales Drop Pressures Rometty Goal
Bloomberg News
International Business Machines Corp. ( IBM:US)'s sales declined for the eighth straight quarter, making it harder to meet Chief Executive Officer Ginni Rometty's profit goal for the year.
Revenue fell 3.9 percent from a year earlier to $22.5 billion in the first quarter as sales continued to tumble in its hardware unit and in developing countries, IBM said today in a statement. That compared with analysts' average estimate of $22.9 billion. The company took an $870 million charge for job cuts, sending adjusted earnings down 15 percent to $2.54 a share.
Chief Financial Officer Martin Schroeter forecast a 'very weak' first quarter in January, and IBM delivered. Now the company has to make up more ground to end the year with an increase in profit. The company reiterated its projection for 2014 adjusted earnings of at least $18 a share this year, even as sales fall amid an industrywide shift to cloud computing.
'For the stock to move meaningfully higher from the current valuation, we think IBM will need to demonstrate the company can grow revenues, not EPS,' Keith Bachman, an analyst at BMO Capital Markets Corp., said in a note to investors before the earnings report.
In each of the past three years, first-quarter have made up 18 percent of IBM's full-year results. If IBM gets $18 a share in profit this year, the first quarter will have represented just 14 percent of the total. That means the company is counting on substantial improvement later this year.
IBM is targeting $20 a share in adjusted earnings by 2015, up from $11.67 in 2010 -- a pledge instated by former Chief Executive Officer Sam Palmisano and sustained by Rometty, who succeeded him in 2012.
Cloud Shift
To get there, Rometty has tried to shift the company's focus to cloud services and data analytics to keep up with changes in the industry. Technology customers are increasingly storing data and software on cloud-computing networks, rather than onsite, limiting their need for servers and mainframes.
IBM spent more than $1 billion to create a new group around its Watson technology, which analyzes large troves of data in plain English. Rometty bought cloud provider SoftLayer Technologies Inc. in 2013 for $2 billion and this year committed an additional $1.2 billion to bolster its data centers and offerings.
Cloud revenue grew more than 50 percent last quarter, and cloud offerings delivered as a service are now at an annual run rate of $2.3 billion. That's still a fraction of IBM's total $100 billion in revenue last year.
To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net
To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Crayton Harrison
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