IBM feeling blue as revenues slide

Third quarter results disappoint Wall Street and IBM turns the blame on China.

by Gabriella Griffith
Last Updated: 26 Jan 2015
Things aren’t looking so rosy for the company often referred to as ‘Big Blue’; IBM has reported a 4% drop in third quarter revenues taking analysts by surprise.
 
The computer giant has blamed slowing sales in China for the unexpected slide, saying sales in the groups ‘growth markets’ fell by 9% in the three months to September. Chief financial officer Mark Loughridge said the problem was caused by Chinese state-owned enterprises holding back over uncertainties surrounding the country’s upcoming economic reform plan.
 
‘As far as the growth markets are concerned, we will be dealing with the China impact for another couple of quarters,’ Loughridge said. Not exactly music to the ears of IBM’s investors.

IBM was also hit by a 17% fall in hardware sales.

But despite the bad news, the company delivered a net income of $4bn, a rise of 6%. Loughbridge, while resolute about the challenges facing the computer giant, was full of confidence about the next few quarters, promising ‘stronger operational performance as we go into 2014.’
 
Investors were less convinced of IBM’s speedy recovery, the markets pushed the company’s share price down by 6% in after hours trading; they are currently trading at $186.73.
 
‘I think that the hardware business is going to be something they need to work through and growth markets are down much more than expected,’ said Josh Olson analyst, Edward Jones.
 
In other ‘ US technology titan’ news, eBay has also experienced a share tumble, as its fourth quarter forecasts also failed to delight analysts. The online auction company revealed it expects to trudge, rather than dash, through the Christmas snow, after US growth rates in online shopping suddenly decelerated. eBay now expects fourth quarter revenues in to come in between $4.5bn and $4.6bn - down from commentators’ estimates of $4.64bn.

The lack of pre-Christmas cheer caused a 5% drop in share price in after hours trading.

‘It’s hard to be really confident when a lot of the fundamentals we read about are not all that positive,’ said Bob Swan, chief financial officer.
 
‘We’re not expecting improvement, but we are expecting things to stabilise.’
 
It’s definitely not all doom and gloom for the online bazaar. eBay’s third quarter results were in line with analysts’ expectations, reporting a 14% rise in revenues to $3.89bn in the three months to September – with a 15% rise in net income.
 
The rise in revenues was largely thanks to the stellar performance of eBay-owned PayPal. Its revenue increased by 19% to $1.6bn as it added five million active users – bringing the total to 137 million.
 
But, caution reigns still at eBay’s San Jose HQ.

‘All the anxiety we see when we pick up the newspaper every day makes us fairly cautious for the holiday season,’ Swan said. (Perhaps he should take a sip out of Loughbridge’s ‘half-full’ glass).

‘I hope I’m too conservative. But right now all the signs point toward a bit of caution.’

We expect fairly muted Christmas parties for eBay staff then...

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