U.S. Markets closed
  • S&P 500

    4,166.45
    -55.41 (-1.31%)
     
  • Dow 30

    33,290.08
    -533.37 (-1.58%)
     
  • Nasdaq

    14,030.38
    -130.97 (-0.92%)
     
  • Russell 2000

    2,237.75
    -49.71 (-2.17%)
     
  • Crude Oil

    71.50
    +0.46 (+0.65%)
     
  • Gold

    1,763.90
    -10.90 (-0.61%)
     
  • Silver

    25.84
    -0.01 (-0.04%)
     
  • EUR/USD

    1.1865
    -0.0045 (-0.3797%)
     
  • 10-Yr Bond

    1.4500
    -0.0610 (-4.04%)
     
  • Vix

    20.70
    +2.95 (+16.62%)
     
  • GBP/USD

    1.3809
    -0.0115 (-0.8272%)
     
  • USD/JPY

    110.1500
    -0.0810 (-0.0735%)
     
  • BTC-USD

    34,549.18
    -1,279.71 (-3.57%)
     
  • CMC Crypto 200

    888.52
    -51.42 (-5.47%)
     
  • FTSE 100

    7,017.47
    -135.96 (-1.90%)
     
  • Nikkei 225

    28,964.08
    -54.25 (-0.19%)
     

IBM software sales weaker than expected in second quarter

The IBM logo is seen outside the company's offices in Petah Tikva, near Tel Aviv October 24, 2011. REUTERS/Nir Elias/Files

By Marina Lopes

WASHINGTON (Reuters) - International Business Machines Corp's software business grew less than expected in the second quarter, sparking a selloff in the company's stock on Thursday, even as its revenue beat forecasts.

The company's software business revenue grew 1 percent in the quarter to $6.5 billion, slower than forecasts of 3 percent, as it signed fewer contracts than expected.

"We expect acceleration of software revenue to mid-single digits in second half of 2014," IBM Chief Financial Officer Martin Schroeter said on a conference call after the results were released.

IBM, the world's largest technology company, has been attempting to restructure its business to focus on high-end products like Cloud, mobile security and Big Data. The company estimates that software will bring in half of its profits by 2015.

"This just isn't a growth story anymore, it hasn't been for a little while," said Scott Kessler an analyst at S&P Capital.

"Software is a big business no question, but 1 percent growth in what many have thought of as their key growth driver is worrisome," he said.

IBM shares slid 1.9 percent in after-hours trading to $188.89 after closing at $192.49.

In January, IBM sold its customer care business, which brought in approximately $1.2 billion in full year revenue in 2013, to hardware distributor Synnex Corp, a sale the company expects to negatively affect revenue comparisons by $300 million per quarter.

Last quarter, the company saw a $870 million restructuring fee, which was largely completed and contributed to savings quarter over quarter.

IBM reported free cash flow of $3 billion and buybacks of $3.7 billion, down from $8.2 billion last quarter.

The company also saw growth in its strategic sectors as business analytics was up 7 percent, cloud revenue grew 50 percent, and security revenue rose 20 percent.

Revenue in the Americas fell 1 percent, while revenue dropped 9 percent in Asia Pacific.

Overall, revenue fell 2 percent to $24.4 billion in the second quarter, above analysts' average estimate of $24.1 billion.

Net profit rose to $4.1 billion, or $4.12 per share, from $3.2 billion, or $2.91 per share, a year earlier.

On an adjusted basis, the company earned $4.32 per share, beating analysts' average estimate of $4.29, according to Thomson Reuters I/B/E/S.

Hardware revenue fell 11 percent to $3.3 billion, the seventh double-digit decline in the past eight quarters.

(Reporting by Marina Lopes; Editing by Richard Chang and G Crosse)