The Cloud

IBM Sales Weighed Down Again by Legacy Businesses

Declining demand for older software and services is still preventing IBM's topline from growing robustly.
Matthew HellerApril 21, 2015

For the 12th straight quarter, IBM has reported a year-on-year decline in revenue as the company continues its rocky transition away from its legacy businesses.

Big Blue’s fourth-quarter revenue decreased 12% to $19.59 billion from $22.24 billion, falling slightly short of projections for $19.64 billion. As Bloomberg reports, new initiatives such as cloud computing and data analytics accounted for 27% of IBM’s business, but that wasn’t enough to make up for revenue lost through divestitures and declining demand for older software and services.

“Are the cloud initiatives, the big data initiatives growing fast enough? The jury is still out,” Dan Morgan, a senior portfolio manager at Synovus Securities, told Bloomberg. “They are showing bits and pieces of those businesses. But, if you look at segment over segment, we are not really seeing it in terms of showing a positive trend.”

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IBM also reported adjusted profit on a per-share basis of $2.91, above the $2.81 average of estimates compiled by Bloomberg. Analysts have been cutting their estimates since IBM CEO Ginni Rometty said in October that the company would fall short of a long-held profit goal.

As part of her realignment strategy, Rometty has reorganized the almost 380,000-employee business to focus on cloud, where customers pay subscriptions for technology stored offsite. Competitors like Oracle, Microsoft, and SAP AG have made similar moves.

“IBM has taken the right steps to realign its portfolio,” Maynard Um, an analyst at Wells Fargo Securities, said in an April 14 note to investors. Still, “the pressures from the declines in legacy businesses will remain higher over the near term.”

Among the legacy businesses, sales in services fell 12% last year to $12.2 billion, or 2% adjusting for currency impact and divested businesses. Software sales fell 8% to $5.2 billion, or 2% after adjustments.

IBM stock closed up 3.4% at $166.16 in trading Monday, after climbing as high as $171.27 following the earnings release. The stock has dropped 14% in the past year.