IBM posts revenue falls across the board

IBM has posted a 12% revenue drop and 32% net income decline for its first quarter of this year.

IBM has posted a 12% revenue drop and 32% net income decline for its first quarter of this year.

The company recorded revenue of $18.6bn and net income of $1.19bn. Earnings per share were 68 cents, in line with the revised estimate of analysts polled by Thomson Financial/First Call. The analysts' initial consensus forecast was for 85 cents.

IBM's product lines showed across-the-board revenue declines, with hardware showing the biggest drop. However, IBM remains confident that despite weak revenue it gained or held share in the "high priority segments" of services, software, servers and advanced storage products.

The shortfall between IBM's expected and actual revenue occurred "very late" in the quarter, leaving a gap that even a strong finish in the last week couldn't close, said chief financial officer John Joyce.

IBM's stream of sales from predictable operations such as outsourcing, maintenance, host-based software and global financing means it enters each year with roughly a third of its revenue already under contract, Joyce said. That steady income, along with IBM's business model and product leadership, set it up well to take advantage of the IT industry's eventual recovery, he said.

Joyce made no predictions about the timing or intensity of the recovery.

"Our crystal ball obviously has been no better than anyone else's in the industry," he said.

IBM's original equipment manufacture business was particularly hard hit, with revenue declining 37% to $1.3bn. IBM's Technology group lost $276m, $75m more than IBM estimated in its warning last week. The loss represented 11 cents in earnings per share, more than half of IBM's year-on-year decline, Joyce said.

Hardware revenue decreased 25% to $6.4bn, with IBM's zSeries mainframes, pSeries, iSeries and storage product lines all showing revenue declines. IBM attributed the enterprise hardware plummets to deferred purchasing decisions, price pressures and product transitions.

Revenue from IBM's hard-disc-drive manufacturing operations fell 29% from last year's first quarter, which Joyce attributed to pricing and demand pressures in the components market. IBM hopes to steady hard disc drive line through a joint venture with Hitachi.

PC revenue also declined, which IBM attributed to continuing reduced demand. IBM is limiting its financial dependence on the PC market and has left the consumer retail channel, Joyce said. Outsourcing is one method by which IBM is pulling back from the depressed sector. In January, it contracted with Sanmina-SCI to take over most of the manufacturing of IBM's NetVista desktop line.

IBM's Global Services organisation was also affected by the downturn. Services revenue dropped 3% $8.2bn. New contract signings jumped 50%, however, to $15bn. While IBM's pipeline for new deals remains strong, new signings generally take two to three quarters to affect earnings, Joyce said.

Software revenue dropped 1% to $2.9bn. WebSphere revenue grew 53% year-on-year. Middleware accounts for 80% of IBM's software revenue.

IBM's research and development expenses for the quarter dropped 6%. Discretionary expense cuts and the integration of Tivoli and Lotus into IBM's software group drove the decline, Joyce said.

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