IBM software sales weaker than expected

Reuters News
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Posted: Jul 17, 2014 4:26 PM

By Marina Lopes

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

The company's software business revenue grew 1 percent to $6.5 billion, slower than estimates 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," said IBM Chief Financial Officer Martin Schroeter on a conference call after the results were released on Thursday.

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 fell 1.6 percent to $189.45 after closing at $192.49.

Revenue in Asia and the Pacific fell 9 percent, with significant declines outside Japan, and improvements in Europe, Africa and the Middle East. Revenue in China was down 11 percent, an improvement from past quarters.

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.The company's global technology services fell 1.7 percent to 9.6 billion.

(Reporting by Marina Lopes; Editing by Richard Chang)