IBM reports continued sales decline in Q3 results

IBM reports sales and profits down again in its Q3 results, as the company continues its transformation across the business to fight off competition

IBM reported a drop in sales and profits in its latest financial quarter as it continues to transform its products and services portfolio to address cloud, analytics, security and artificial intelligence, in the face of fierce competition. 

In its third-quarter results IBM reported sales worth $19.3bn, 1% less than the same three-month period the year before. Profits dropped to $3bn in Q3 2015, from the corresponding $3.5bn result in Q3 2014, representing a 14% drop. Profit for the nine months ended 30 September 2015 was 13% less than the same period the year before, at $8.9bn compared with $10.2bn.

CEO Ginni Rometty said the company is making progress in its transformation. "In the third quarter we again made progress in the transformation of our business to higher value, with strong growth in our strategic imperatives and expanded operating margins,” she said. "We are continuing to make significant investments to build platforms around analytics, cloud, mobility and security that lay the foundation for a new era of cognitive business."

The company now has more competitors than imaginable a few years ago, and part of its traditional business is sacred. IT services provides a good example of the pressure IBM faces from competitors: IBM once dominated the services business, but the rapid growth of competitors – India-based suppliers in particular – has eaten into its business. For example, IBM’s Global Business Services business reported a 5% drop in sales to $4.2bn, making it about the same size as Tata Consultancy Services (TCS), which earlier this month reported $4.16bn in sales for its third quarter, representing a 5.8% increase.

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Software sales dropped 3% to $5.1bn. IBM’s middleware products – including WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products – saw 1% fewer sales at $3.4bn.

The company’s Systems Hardware business made $1.5bn sales for the quarter, which was down 2% year-to-year. 

But z Systems mainframe server product sales increased 20% compared with the same period in 2014.

Outsourcing reprieve

Late in 2014, IBM announced some large IT outsourcing deals in the space of a few weeks amid poor financial results and questions over its direction.

It announced $3.6bn worth of IT infrastructure outsourcing deals in total. This included a seven-year, $1.25bn contract with WPP to put digital services on a hybrid cloud and manage it globally. ABN Amro extended its multi-billion-euro outsourcing deal with IBM by a further 10 years and German airline Lufthansa confirmed a €1.25bn, seven-year outsourcing contract with IBM.

Peter Schumacher, CEO at business consultancy The Value Leadership Group, said when it comes to services many businessess see companies  like TCS as being innovative and adding value. "At the same time, they see IBM stuck in a time warp, not willing to move away from its traditional behavior and way of doing business," he added.

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