By Lehar Maan and Abhirup Roy
(Reuters) - International Business Machines Corp (IBM.N) posted a bigger-than-expected drop in revenue and cut its full-year profit forecast, as a stronger U.S. dollar accentuated weakness in demand from China and emerging markets.
It was the 14th quarter in a row that IBM has posted a reduction in revenue, as the world's largest technology services company gets rid of low-margin businesses, but has so far failed to make up the shortfall with newer initiatives in the more lucrative area of cloud computing.
Shares of IBM fell 4.8 percent in after-hours trading to $141.95.
"This is another example of the massive headwinds that large-cap traditional tech stalwarts are seeing in this ever-changing environment, as more customers move to the cloud," FBR Capital Markets analyst Daniel Ives said.
China was particularly hard hit, with fewer big deals causing revenue from that country to fall 17 percent, IBM's chief financial officer said on a conference call with analysts. Sales in Brazil, Russia, India and China combined were down 30 percent.
Armonk, New York-based IBM, which gets more than half its business from overseas, said overall revenue from continuing operations was cut 9 percent by a strong U.S. dollar (.DXY), which is up about 17 percent from a year ago against a basket of currencies.
The company's total revenue fell 13.9 percent to $19.28 billion in the quarter, below analysts' average forecast of $19.62 billion.
Martin Schroeter, IBM's CFO, pointed to weakness in its consulting and storage businesses for the revenue shortfall, after taking currency moves and discontinued business into account.
"I would characterize it as the consulting and systems integration business moving away from these large, packaged applications and the storage business moving to flash and to the cloud," Schroeter told Reuters in an interview.
Flash is a speedy type of memory used in mobile phones and other types of electronic devices.
IBM lowered its full-year 2015 operating profit forecast to a range of $14.75 to $15.75 per share from $15.75 to $16.50. Analysts on average were expecting $15.68, according to Thomson Reuters I/B/E/S.
The company is shifting away from hardware to the cloud, much like established rivals such as Oracle Corp (ORCL.N) and Microsoft Corp (MSFT.O). Each is striving to boost Internet-based software and services sales to compete with Salesforce.com Inc (CRM.N) and Amazon.com Inc's (AMZN.O) web software unit.
In August, IBM said it would buy medical image company Merge Healthcare Inc (MRGE.O) in a $1-billion deal and combine it with its newly formed health analytics unit, which is powered by its famous Watson supercomputer.
Revenue from what the company calls "strategic imperatives," which include cloud and mobile computing, data analytics, social and security software, rose about 17 percent in the third quarter ended Sept 30.
Yet the new businesses have so far failed to make up for revenue lost to divestitures. The company known as 'Big Blue' has been selling low-margin businesses such as cash registers, low-end servers and semiconductors to focus on high-growth areas such as security software and data analytics, besides cloud-based services.
IBM's net income from continuing operations fell to $2.96 billion, or $3.02 per share, from $3.46 billion, or $3.46 per share, a year earlier.
Consolidated net income rose to $2.95 billion, or $3.01 per share, from $18 million, or 2 cents per share, a year earlier.
Last year profit was hurt by non recurring pre-tax charge of $3.3 billion, net of tax, for discontinued operations.
Excluding items, IBM earned $3.34 per share from continuing operations in the latest quarter, beating the average analyst estimate of a profit of $3.30 per share.
Up to Monday's close, IBM's shares had fallen about 7 percent this year.
(Reporting by Lehar Maan and Abhirup Roy in Bengaluru; Writing by Bill Rigby; Editing by Savio D'Souza and Christian Plumb)