Sales Drop at IBM for 13th Straight Quarter

IBM's strong growth in cloud computing was offset by sharp declines in its legacy software and systems hardware businesses.
Matthew HellerJuly 20, 2015
Sales Drop at IBM for 13th Straight Quarter

IBM reported mixed results for the second quarter on Monday, as declines in software and systems hardware revenue offset growth in cloud computing.

The company posted second-quarter adjusted profit of $3.84 per share on $20.81 billion in sales. Both numbers were down 13% from the prior-year period.

Analysts had expected the company to report earnings of $3.78 a share on $20.95 billion in revenue. It was the 13th straight quarter of year-over-year revenue declines for IBM, which has been shedding hardware businesses as it focuses on growing markets such as cloud computing, the Internet of things, and business analytics.

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Following the after-hours release of the earnings report, IBM stock fell more than 5% to $164.08 in trading Monday.

Daniel Ives, an analyst with FBR & Co., said investors are still not sold on the idea that companies such as IBM can successfully transition to the cloud. The “jury is still out on that important question,” he told The Wall Street Journal.

IBM’s “strategic imperatives” — consisting of cloud computing and analytics — saw revenue growth in Q2 of about 20%, boosted by a cloud sales increase of 50%.

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“We expanded margins, continued to innovate across our portfolio and delivered strong growth in our strategic imperatives of cloud, analytics and engagement, which are becoming a significant part of our business,” Ginni Rometty, IBM’s president and CEO, said in a statement.

But software revenue fell 10% and systems hardware sales plummeted 32% year over year to $2.1 billion in the quarter even after accounting for September’s sale of the System x hardware business to Lenovo for $2.1 billion.

“The falloff in IBM’s traditional businesses is dwarfing the company’s ability to capture new revenue opportunities as the market shifts,” Bernstein analyst Toni Sacconaghi wrote.

IBM maintained its operating non-GAAP earnings per share outlook of $15.75 to $16.50 for the year and also projected a “modest increase” in free cash flow year over year. Earlier this month, CNBC reports, the company said it made a breakthrough in shrinking computer chips, creating working versions of ultra-dense semiconductors.

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