IBM revenue hurt by strong $, tight IT budgets

Wall Street had expected a decline in revenue by about 3% to $25.36 bn

IBM has posted a quarterly revenue miss and barely beat analyst expectations for earnings per share as customers put off spending on big ticket items and a stronger dollar hit the company’s top line.

Businesses and governments are holding back on spending on information technology amid economic uncertainty in Europe and ahead of US elections next month.

International Business Machines Corp, which has shifted its focus to higher-margin software and services from tech products, said on Tuesday that earnings per share, excluding items, were $3.62, just beating average analysts’ estimates of $3.61.

Excluding a $160 million charge related to UK pension fees net income fell slightly to $3.82 billion from $3.84 billion a year ago while net income, excluding acquisition costs, rose five per cent to $4.2 billion.

Revenue eased five per cent to $24.7 billion due to a negative currency impact of almost $1 billion. Wall Street had expected a decline in revenue by about three per cent to $25.36 billion.

“If you look at the third quarter performance, we did start off the first two months of the quarter on a stronger trajectory than we saw for the full quarter,” Chief Financial Officer Mark Loughridge said on a call with analysts.

He added “a handful of deals ... fell out of the quarter” which the company had thought were secure.

The CFO also said that several large countries had disappointed with Mexico and Australia “both down double digits.”

Global Equities Research analyst Trip Chowdhry said that some customers are holding off with purchases ahead of the US presidential election, going ahead only with smaller purchases instead of replacing entire systems. “Customers are just not opening their wallets,” he said. “That is putting pressure on IT spend.” Forester analyst Andrew Bartels agreed, saying that CEOs were waiting for clarity on “whether the fiscal cliff will be avoided and when will Europe finally turn the corner.”

Fiscal cliff refers to the impact of around $600 billion in tax hikes and automatic spending cuts set for 2013 as a result of successive failures by Congress to agree on an orderly alternative method of reducing U.S. budget deficits.

Bartels added that the third quarter would likely be IBM's weakest quarter.

Revenue from IBM's EMEA region, which includes Europe, Middle East and Africa were $7.2 billion, down 9 percent, without adjusting for foreign exchange effects.

In the Americas revenue declined 4 percent to $10.4 billion while Asia-Pacific revenue rose 1 percent to $6.5 billion.

The company said its services backlog at September 30 was $138 billion, up 1 percent year-over-year, while signings of services contracts were $13.3 billion versus estimates of $12.4 billion.

Investors view signings as a key indicator of future profits, but IBM says the focus should be more on the total business backlog because it is a better sign of future revenue.

IBM reiterated its outlook for the year, targeting earnings per share of at least $15.10.

IBM stock lost 3.31 percent to $204 in after hours trading. It closed up 1 percent at $211 on Tuesday. (Additional reporting by Jim Finkle; Editing by Phil Berlowitz)