The IBM (NYSE:IBM) fall

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By Hanson So on October 21, 2014 Company

International Business Machines Corp (NYSE:IBM (NYSE:IBM)) is a big name in technology and consulting firms. IBM (NYSE:IBM) manufactures and sells computer hardware and software, and offers infrastructure, hosting and consulting along with other services. According to its third quarter release this Monday, the IT giant has $3.46 earnings per share which is down to a staggering 8% from last year. Such low figures don’t only reflect badly on IBM (NYSE:IBM) but will bring down Dow Jones along with it, as it has a large proportion in the index. Other IT players will surely be affected by this as well.

These figures come as an embarrassment for IBM (NYSE:IBM). The tech giant did not make any comments on the $20 EPS target, which was expected to be met by the end of 2015. Diluted earnings and total revenues through operations also took their toll. Diluted earnings were down by 10% to $3.68 per share, whereas the total revenues fell by 4% giving a total of $22.4 billion. The Thomas Reuters estimates were $4.32 EPS and $23.37 billion in expected revenues, respectively. The net income of operations was also affected and fell 17% to $3.5 billion and the non-GAAP fell by 18% to $3.7 billion.

According to investigators and critics, these figures don’t come as a surprise. They estimated that the service backlog was down 17% to $128 billion on September 30^th 2014. This is a red signal indicating more difficulties for the company in the near future. The GAAP and non-GAAP continuing operations also went down between 40 and 90 basis points, giving the company a below 50% gross profit margin.

Analyzing from a geographical perspective, one can see:

- In America the third quarter revenues fell by 2% resulting in $10.1 billion in total.

- Europe, Middle East and Africa were also down 2%, giving a total of $7.2 billion in revenues.

- The Asia-Pacific hit was much bigger, rounding up to 9% to $5.0 billion.

- Growth markets also declined by 6% and BRIC countries, which include Brazil, Russia, India and China, were also affected by 7%.

Looking into unit performance, the cloud revenues were up by 50% and it delivered services of 80%, just in the third quarter at an annual rate of $3.1 billion. Besides that Business revenues rose by 8% as compared to last year, mobile revenue went up by 100% and security revenues by 20%. These comparisons are based on last year’s third quarter figures.

According to Ginni Rometty, the chairman, President and chief executive of IBM (NYSE:IBM)- the company is disappointed with its overall performance. Even though the expectations weren’t met due to changes in clients buying behavior; the company still managed to do well strategically. The cloud, data and analytics, security, social and mobile are all areas that have generated good results. IBM (NYSE:IBM) aims at providing higher value, and eradicating elements that it considers useless. It also promises to cater a significant value to shareholders through dividends as well as share repurchase.