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 Shares of Big Blue fell about 4 percent to $188.20 in after-hours
trade.
Total revenue fell 4 percent to $22.5 billion in the first quarter,
below analysts' average estimate of $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, which is widely read by
investors.
The revenue was the lowest since the first quarter of 2009, when
revenue was $21.71 billion.
Revenue from the hardware business, which includes servers and
systems storage, plunged 23 percent to $2.4 billion.
IBM has been restructuring its business, with job reductions and the
sale of its low-end server business to Chinese PC maker Lenovo Group
Ltd for $2.3 billion in January, in efforts to achieve its targeted
operating earnings of $20 per share by 2015.
The company on Wednesday reiterated its full-year operating earnings
target of $18 per share.
"They used to be a leader. Now they sell one business after the
next. That is not a way to grow," Hickey, who has followed IBM for
30 years, said.
IBM warned that its hardware business may 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 percent, while revenue dropped 12
percent in Asia Pacific and declined 11 percent 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 percent to $5.66 billion, but the growth rate was
slower than the fourth quarter's 2.8 percent.
Last month, the technology research firm Gartner reported that IBM
lost its spot as the world's No. 2 software make behind Microsoft
Corp. Oracle Corp 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.
BETTING ON CLOUD
IBM plans to spend more than $1.2 billion to expand its web-based
software products, better known as cloud computing.
IBM said its cloud revenue was up more than 50 percent in the
quarter. The annual run rate of cloud delivered as a service doubled
from last year to $2.3 billion.
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.
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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.
The company spent $3.1 billion to acquire 10 companies in 2013.
In January, IBM said it will invest more than $1 billion to
establish a new business unit for Watson — the supercomputer system
that beat humans on the television quiz show "Jeopardy" — deployed
on SoftLayer cloud computing infrastructure business the company
bought last year [ID:nL3N0KJ22N]
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.
"We don't see where the upside is going to come, unless there is
something major — a major restructuring or other major change," Tim
Ghriskey, chief investment officer with Solaris Asset Management,
which helps manage some $1.5 billion, told Reuters.
Ghriskey said Watson has yet to yield any blockbuster products
capable of turning around the revenue declines. "Watson is a way to
give them visibility, something for salesmen to talk about."
Q1 PROFIT FALLS
IBM's first-quarter net profit fell to $2.38 billion, or $2.29 per
share, from $3.03 billion, or $2.70 per share, a year earlier.
The results included a $870 million charge related to job cuts, the
company said.
On an adjusted basis, the company earned $2.54 per share.
Analysts on average had expected earnings of $2.54 per share,
according to Thomson Reuters I/B/E/S.
The stock, which gained 4.6 percent over the last three months,
closed at $196.40 on the Nasdaq on Wednesday.
(Additional reporting by Marina Lopes in New York and Jim Finkle in
Boston; editing by Sriraj Kalluvila and Leslie Adler)
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