IBM revenue misses Street hit by weak China demand

Reuters
The sign at the IBM facility near Boulder, Colorado is seen with the Boulder Flatiron mountains in the background
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The sign at the IBM facility near Boulder, Colorado is seen with the Boulder Flatiron mountains in the …

By Supantha Mukherjee and Soham Chatterjee

(Reuters) - IBM , the world's largest technology services company, reported quarterly revenue that missed estimates for the fourth straight quarter, due to a steep fall in demand for servers and storage products in emerging markets such as China.

International Business Machines Corp shares fell 3.5 percent to $181.68 (110.26 pounds) in after-hours trade.

Chief Executive Ginni Rometty said she and her team would forego their annual incentive payments for 2013, as IBM failed to grow revenue, especially in growth markets such as China.

Revenue in IBM's hardware business, which includes server and storage products, fell for the ninth straight quarter as more companies switch to cloud computing services from traditional IT infrastructure.

IBM's revenue also took a hit in emerging economies as a backlash against U.S. government spying contributed to plummeting demand. 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," Bartels said.

IBM, however, forecast full-year 2014 adjusted profit that beat analysts' expectations and also affirmed its 2015 target for operating earnings of at least $20 (12.14 pounds) per share.

REVENUE FALLS

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.

Revenue from its 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.

China accounts for about 5 percent of IBM's business. About 40 percent of that business is hardware.

IBM said China's economic reforms enacted in November was affecting state-owned enterprises which formed a bulk of its business.

"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," Chief Executive Ginni Rometty said in a statement.

For 2013, Rometty's base pay was $1.5 million and annual incentive payment (AIP) target was $4 million.

"She will not receive any of that AIP. So, in terms of these cash payments, about 75 percent of her cash pay was at risk, and she will not receive the at-risk portion," IBM spokesman John Bukovinsky said in an email.

SOFTWARE SHINES

Software revenue was the only bright spot growing 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 computing.

Moving to cloud allows businesses to lower their costs by ditching bulky servers for network-based software and using remote data centres 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.

IBM's 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.

On an adjusted basis, it earned $6.13 per share, above analysts' estimates of $5.99 per share.

The stock closed at $188.43 on Tuesday on the New York Stock Exchange. The stock 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)

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