IBM -4.1% AH; buybacks boost EPS, but hardware sales remain weak

|By:, SA News Editor

IBM is reiterating full-year guidance for EPS of at least $18 (consensus is at $17.84).

Big Blue spent an eye-popping $8.2B on buybacks in Q1, up from $5.8B in Q4. That allowed EPS to nearly meet estimates in spite of a $450M revenue miss. On the other hand, IBM's tax rate (the subject of recent scrutiny) rose to 20% from Q4's 11% and Q3's 16%. A 90 bps Y/Y increase in gross margin to 47.6% also boosted EPS.

Hardware/chip sales remain bleak: They fell 23% Y/Y vs. 26% in Q4.  Software +2% vs. +3%, global technology services -3% vs. -4%, global business services flat vs. +1%, global financing +3% vs. flat. The services backlog stood at $138B at quarter's end, down $5B Q/Q and $3B Y/Y.

Asia-Pac remains a weak spot: Sales fell 12% Y/Y. Americas were down 4%, and EMEA up 4%. "Growth markets" and BRIC sales each fell 11%.

Q1 free cash flow was just $0.6B, well below net income of $2.6B. Cash on hand fell to $9.7B from $11.1B at the end of Q4, and non-global financing debt rose to $15.7B from $12.2B.

Q1 results, PR