By Tess Stynes and Robert McMillan
International Business Machines Corp. reported a 12% drop in
revenue--the company's 12th straight quarter of year-over-year
declines--hurt by the stronger U.S. dollar and decreases in its
hardware business.
For the year, the company reiterated its estimate for per-share
profit, excluding certain items, between $15.75 and $16.50. In the
first quarter, the company's per-share earnings exceeded
expectations.
Shares slid 0.4% to $165.50 in recent after-hours trading.
IBM is in the middle of a corporation reinvention that is
starting to feel a lot like its early 1990s transition to a
software and services company. The company is shedding unprofitable
hardware businesses, as it pursues higher-margin fare in the realms
of big data, security, cloud computing, and software and services
for mobile devices.
Last year, these initiatives accounted for $25 billion, or 27%
of annual revenue. IBM hopes they will grow to $40 billion, or 40%
of revenue by 2018.
The computing pioneer, originally known for big mainframe
systems announced deals last year to sell its commodity server
business--System X business--to Lenovo Group Ltd. and pay
Globalfoundries Inc. to take over IBM's semiconductor manufacturing
business.
The company expects its hardware business to improve this year
as it refreshes its mainframe and Unix computer systems, but IBM is
facing a new generation of cloud-computing competitors. Analysts
expect it to continue to struggle this year in services and
software, UBS analyst Steven Milunovich said.
"Investors and users both see them on the wrong side of the
fence when it comes to disruption," Mr. Milunovich said.
Big Blue also has been pushing sales of its Watson software.
IBM's Watson data-mining technology has delivered high-profile
results, famously winning at "Jeopardy!" in 2011, but the path to
revenue has been slow.
IBM has unveiled several Watson-based efforts in recent months,
most recently a partnership with Apple Inc., Johnson & Johnson
and Medtronic Inc., to gather and analyze a flood of health-related
personal information. Known as Watson Health, the alliance
transfers IBM's experience in data processing to the health-care
field, part of an evolving strategy to pool and analyze data from
other companies, such as Twitter Inc. and the Weather Channel.
Overall, IBM reported a profit of $2.33 billion, down from $2.38
billion a year earlier. On a per-share basis, earnings rose to
$2.35 from $2.29 on fewer shares outstanding. Excluding
restructuring-related charges, retirement-related charges and other
items, per-share earnings from continuing operations rose to $2.91
from $2.68.
Revenue decreased 13% to $19.59 billion. Excluding currency
impacts and divested businesses, revenue was flat from a year
ago.
Analysts polled by Thomson Reuters expected per-share profit of
$2.80 and revenue of $19.64 billion.
Hardware revenue slumped 23% to $1.7 billion, but excluding the
divestiture of the commodity server business and currency effects,
sales increased 30%.
Global technology segment revenue declined 11% to $7.9 billion,
but excluding divestitures and currency impacts fell 1%.
Software segment revenue dropped 8% to $5.2 billion, but
excluding currency fluctuations declined 2%.
Global business services revenue decreased 13% to $4.3 billion,
but excluding divestitures and currency impacts fell 4%.
As of February, IBM expected currency to hurt revenue growth by
more than 7 percentage points, above the hit of 6 to 7 percentage
points it projected in January. For the full year, IBM is expecting
a foreign-exchange impact of more than 6 points, above previous
projections for an impact of 5 to 6 points.
Write to Tess Stynes at tess.stynes@wsj.com and Robert McMillan
at robert.mcmillan@wsj.com
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