NEW YORK: IBM surprised investors with a slide in TECHNOLOGY [] services contracts in the second quarter and missed revenue expectations because of a weaker euro, shaving more than 4 percent off its shares.
While firm growth in the company's higher-margin software unit and sales in emerging markets bolstered profit, the results announced on Monday, July 19 were not as good as investors had wanted to see from the world's biggest technology services company.
Some analysts said International Business Machines Corp's disappointing results might weigh on technology shares on Tuesday, dampening expectations that corporate spending on hardware and software was on the rebound following sterling numbers from Intel Corp.
"Things are improving -- we're coming out of the recession -- and services signings is one of the indicators that people would like to see at least grow from year over year," said Mark Demos, portfolio manager at Fifth Third Asset Management, an IBM shareholder.
"There were some currency hits that people were expecting, but even with that, it might have been a little bit weaker than people were expecting."
IBM said its second-quarter revenue rose 2 percent to $23.7 billion. Analysts on average had expected $24.2 billion, according to Thomson Reuters I/B/E/S.
Big Blue blamed currency rates for reducing revenue by about $500 million in the quarter. But analysts said they were also concerned about some numbers, including signings of services deals, a key indicator of future revenue.
IBM said signed services contracts fell 12 percent to $12.3 billion. Total outsourcing services signings decreased 19 percent to $6.5 billion, it said.
"They were clearly affected from forex headwinds, but at the end of the day, IBM continues to suffer from the law of large numbers," said Brian Marshall, analyst at Gleacher & Co.
"The company is struggling to find good growth opportunities."
UP BY A NICKEL
Net profit slightly exceeded expectations and rose to $3.4 billion, or $2.61 a share, from $3.1 billion, or $2.32 a share, a year earlier. Wall Street had forecast $2.58 a share.
Despite the solid showing in its bottom line, the company's shares fell 3 percent after-hours to $125.60 after closing at $129.79 on the New York Stock Exchange.
The company's higher outlook for full-year earnings -- of "at least $11.25" per share, up from "at least $11.20" previously -- helped little.
IBM shares have fallen about 2 percent over the past quarter as investors focused on technology companies such as Apple Inc and VMware Inc which are enjoying double-digit percentage revenue growth.
Analysts said the decline in services signings was especially disappointing given that its main rival Accenture Ltd recently posted solid bookings.
But few were recommending selling IBM shares, given the company's solid earnings growth. This was its 30th consecutive quarter of year-on-year improvement in earnings per share, and the company has said it plans to double its profit by 2015.
One of the strongest areas of revenue growth in the quarter was emerging markets, which showed a 14 percent gain year-on-year.
IBM, which bought PwC Consulting from PricewaterhouseCoopers in 2002 and sold its personal computer business to Lenovo Group in 2005, has spent the past decade shifting away from commoditized hardware products, focusing instead of more profitable software and services.
Its quarterly gross profit margin also inched up to 45.6 percent from 45.5 percent, helped by higher profitability in its software and services business.
Shares of IBM slid to $124.51 after hours from a regular-session close of $129.79. - Reuters
While firm growth in the company's higher-margin software unit and sales in emerging markets bolstered profit, the results announced on Monday, July 19 were not as good as investors had wanted to see from the world's biggest technology services company.
Some analysts said International Business Machines Corp's disappointing results might weigh on technology shares on Tuesday, dampening expectations that corporate spending on hardware and software was on the rebound following sterling numbers from Intel Corp.
"Things are improving -- we're coming out of the recession -- and services signings is one of the indicators that people would like to see at least grow from year over year," said Mark Demos, portfolio manager at Fifth Third Asset Management, an IBM shareholder.
"There were some currency hits that people were expecting, but even with that, it might have been a little bit weaker than people were expecting."
IBM said its second-quarter revenue rose 2 percent to $23.7 billion. Analysts on average had expected $24.2 billion, according to Thomson Reuters I/B/E/S.
Big Blue blamed currency rates for reducing revenue by about $500 million in the quarter. But analysts said they were also concerned about some numbers, including signings of services deals, a key indicator of future revenue.
IBM said signed services contracts fell 12 percent to $12.3 billion. Total outsourcing services signings decreased 19 percent to $6.5 billion, it said.
"They were clearly affected from forex headwinds, but at the end of the day, IBM continues to suffer from the law of large numbers," said Brian Marshall, analyst at Gleacher & Co.
"The company is struggling to find good growth opportunities."
UP BY A NICKEL
Net profit slightly exceeded expectations and rose to $3.4 billion, or $2.61 a share, from $3.1 billion, or $2.32 a share, a year earlier. Wall Street had forecast $2.58 a share.
Despite the solid showing in its bottom line, the company's shares fell 3 percent after-hours to $125.60 after closing at $129.79 on the New York Stock Exchange.
The company's higher outlook for full-year earnings -- of "at least $11.25" per share, up from "at least $11.20" previously -- helped little.
IBM shares have fallen about 2 percent over the past quarter as investors focused on technology companies such as Apple Inc and VMware Inc which are enjoying double-digit percentage revenue growth.
Analysts said the decline in services signings was especially disappointing given that its main rival Accenture Ltd recently posted solid bookings.
But few were recommending selling IBM shares, given the company's solid earnings growth. This was its 30th consecutive quarter of year-on-year improvement in earnings per share, and the company has said it plans to double its profit by 2015.
One of the strongest areas of revenue growth in the quarter was emerging markets, which showed a 14 percent gain year-on-year.
IBM, which bought PwC Consulting from PricewaterhouseCoopers in 2002 and sold its personal computer business to Lenovo Group in 2005, has spent the past decade shifting away from commoditized hardware products, focusing instead of more profitable software and services.
Its quarterly gross profit margin also inched up to 45.6 percent from 45.5 percent, helped by higher profitability in its software and services business.
Shares of IBM slid to $124.51 after hours from a regular-session close of $129.79. - Reuters
No comments:
Post a Comment