Shares in the world's largest technology services company fell 3.5
percent to $181.68 in after-hours trade.
Chief Executive Officer Ginni Rometty and her team will forego their
annual incentive payments for 2013 as IBM failed to increase
revenue. Particularly in China, the government-owned corporations
that IBM relies on for a large chunk of revenue are putting the
brakes on IT spending.
China accounts for about 5 percent of IBM's business, about 40
percent of which is hardware sales. The country's economy, the
world's second largest, is tough to read, executives said. A new
government headed by Xi Jinping is spearheading significant
structural reforms that are affecting state-owned companies.
"China is going through a very significant economic set of reforms,"
IBM Chief Financial Officer Martin Schroeder told analysts. "While
they have slowed, we don't think that this opportunity has gone
"We'll be on a trajectory to growth as we exit 2014 and we're
comfortable that we get back to mid-single digits across the growth
market regions by the end of the year."
IBM, for years a tech-infrastructure provider of choice for large
corporations and government agencies, is expanding into
higher-margin software and cloud computing services as its hardware
Revenue in that business, which includes server and storage
products, fell for the ninth straight quarter as more companies
switched to the cloud from traditional infrastructure.
Sources said IBM and China's Lenovo have revived discussions about a
sale of Big Blue's low-end server unit, though executives did not
mention that on Tuesday.
Some analysts said a backlash against U.S. government spying in
emerging economies contributed to plummeting demand at IBM.
Asia-Pacific revenue fell 16 percent, while that from Brazil,
Russia, India and China fell 14 percent in the quarter.
"Their growth markets were everything but growth," Forrester analyst
Andrew Bartels said. "They have had quite a bit of success with
sales of hardware in these emerging markets, but these markets are
not doing well. They're facing competition in those markets."
IBM forecast that full-year 2014 adjusted profit would beat
analysts' expectations and also affirmed its 2015 target for
operating earnings of at least $20 per share. Some analysts said
they thought IBM would need to grow non-hardware revenue
substantially to hit that mark.
Edward Jones analyst Josh Olson told Reuters the company would need
solid performance in software and services to meet its target, since
expectations are that hardware will not contribute to profit in
"Assuming a normalized tax rate, this doesn't leave a lot of room
for error to meet the $18 EPS target," he said.
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Total revenue fell 5 percent to $27.7 billion in the fourth quarter
ended December 31, missing analysts expectation of $28.25 billion,
according to Thomson Reuters I/B/E/S.
"In view of the company's overall full-year results, my senior team
and I have recommended that we forgo our personal annual incentive
payments for 2013," CEO Rometty said in a statement. For 2013, her
base pay was $1.5 million and annual incentive payment target was $4
Revenue from IBM's system and technology unit, which includes
servers and storage, fell 26.1 percent to $4.26 billion. Revenue
from global technology services, its largest business, fell 3.6
percent to $9.92 billion.
Software revenue was the only bright spot. It grew 2.8 percent to
$8.14 billion in the quarter.
IBM and rivals such as Oracle and SAP are racing to meet surging
demand for web-based software products, better known as cloud
Moving to the cloud allows businesses to cut costs by ditching bulky
servers for network-based software and using remote data centers run
by technology companies instead.
The global cloud services market last year grew by almost a fifth to
an estimated $131 billion, according to research firm Gartner. IBM
Markets Intelligence estimates the market could be as big as $200
billion by 2020.
Net income for the fourth quarter rose to $6.2 billion, or $5.73 a
share, from $5.8 billion, or $5.13 per share a year earlier. It got
help though from a lower tax rate of 11.2 percent in the fourth
quarter, down 14.3 points from a year ago.
On an adjusted basis, it earned $6.13 per share, above analysts'
estimates of $5.99 per share.
Before its after-hours decline, the stock closed at $188.43 on
Tuesday on the New York Stock Exchange. It has gained about 2
percent since it reported third-quarter results in October.
(Reporting by Supantha Mukherjee and
Soham Chatterjee; Editing by Savio D'Souza and David Gregorio)
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