IBM hardware struggles, with first quarter earnings a fifth lower than last year

IBM reports 21% drop in first quarter revenue as it continues to "take actions to transform parts of the business"

IBM has reported first quarter earnings of $2.4bn, down 21% on the same period last year.

Ginni Rometty, IBM chairman, president and chief executive officer, said: "In the first quarter, we continued to take actions to transform parts of the business and to shift aggressively to our strategic growth areas including cloud, big data analytics, social, mobile and security.

"As we move through 2014, we will begin to see the benefits from these actions. Over the long term, they will position us to drive growth and higher value for our clients."

Revenue from IBM’s Systems and Technology business was down 23% to $2.4bn, while its Global Technology Services business posted revenue of $9.3bn, down 3%. Application outsourcing was down 8%.

The company's software revenue was up 2% to $5.7bn, middleware products grew by 5%, while software as a service (SaaS) revenue grew by 25%.

System z revenue was down by 40%, with MIPS down 19% year on year. IBM said these drops were due to the cyclic nature of mainframe technology upgrades. 

Revenue in its Power server division also declined by 21%. The company said it was repositioning the Power platform by using the OpenPOWER consortium to make Power technology available to an open development alliance.

Storage hardware revenue was 23% lower year on year. 

"Our Flash solutions contributed growth again this quarter, however we saw substantial weakness in high-end storage," said Martin Schroeter, chief financial officer at IBM, in a transcript of the IBM first quarter 2014 investor call posted on the SeekingAlpha financial website.

In January 2014, IBM sold its x86 server business (System x) to Lenovo for $2.6bn. According to Schroeter, the divestiture of System x will result in a smaller and more profitable hardware business going forward. 

“IBM will remain a leader in high-performance and high-end systems, in storage and in cognitive computing, and will continue to invest in R&D for advanced semiconductor technology,” he said.

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