IBM's Chinese hardware sales plunge; can the company return to growth?

IBM's Chinese sales fell 22% Y/Y in Q3 and its hardware sales within the country dove 40%, management disclosed on the CC. The latter accounted for 5% of the 9% revenue drop seen for "growth markets" during Q3. A demand rebound isn't expected until after Q1 2014, as local firms wait for economic reform plans to be announced.

Talking about growth market weakness in general, IBM admits only half of its challenges stem from business conditions; the rest are execution-related.

"We see a pattern...," said Bernstein's Toni Sacconaghi in a pointed question. With IBM having seen six straight quarters of revenue declines, Sacconaghi wonders if Big Blue should model for 0% rev. growth going forward. Management gave a list of reasons why a return to growth was possible, including a healthy services backlog (+6% Y/Y in Q3 exc. forex).

Power systems (UNIX server) sales plunged 38% Y/Y in Q3, worse than Q2's 25%. System x (x86 servers) fell 18%, storage hardware 11%. System z (mainframes) rose 6%, aided by an upgrade cycle. Chips +1%.

One bright spot: cloud-related revenue topped $1B, with $460M coming from cloud services (a chunk of which likely comes from SoftLayer).

Q3 free cash flow (exc. financing receivables) was $2.2B, down $900M Y/Y and well below net income of $4.4B. IBM ended the quarter with $12.3B in cash/investments and $10.3B in non-global financing debt.

IBM now -5.9% AH. Q3 results, guidance/details.

From other sites
Comments (5)
  • JonBeGood
    , contributor
    Comments (292) | Send Message
    IBM was over $200.00 a share in 2012 when Sam Palmisano retired as CEO and veteran IBM executive insider Virginia Romerty took charge. I would say that she is at least full accountable for explaining IBM's future corporate strategy within the context of this Q3 earnings release. Let's be perfectly clear that issues of gender and the corporate glass ceiling are not what is in question here. I would strongly prefer to see Ginny Romerty succeed and provide a cogent picture and persuasive road map of IBM's way ahead.
    If necessary, perhaps Sam needs to be reactivated to CEO duty regardless of being over 60 years of age which is has been the customary retirement age at IBM. After all, Alan Mulally is 68 and continues to lead Ford's dramatic turn around story.
    16 Oct 2013, 07:43 PM Reply Like
  • stoj
    , contributor
    Comments (778) | Send Message
    the crazy thing was, to increase dividends, when in reality IBM needs that cash to downsize, and refinance
    16 Oct 2013, 08:19 PM Reply Like
  • JonBeGood
    , contributor
    Comments (292) | Send Message
    Spelling Correction: IBM's current CEO named is properly spelled Virginia or "Ginny" Rometty. To Ms. Rometty's credit she expediously issued an an overview of IBM's 3rd quarter results and explained the current transition IBM is going through with greater emphasis on fast growth businesses including Smarter Planet and Cloud. I wish her every success. I say IBM is a hold to acculuate through dividend reinvestment.
    16 Oct 2013, 08:57 PM Reply Like
    , contributor
    Comments (21) | Send Message
    Since our administration has chosen the path of least resistance (or honesty), our currency will suffer and IBM results will too, as will all US$ denominated international companies, unless they are hedging like crazy now to prepare for 2014.
    16 Oct 2013, 09:33 PM Reply Like
  • Jackson Cash
    , contributor
    Comments (357) | Send Message
    Thank the NSA. Mark this post, every "tech" company that touches Fascist-Sam gets the kiss of death internationally. Squabble all you want.
    17 Oct 2013, 11:40 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs