IBM Profit Tops Estimate; Revenue Misses

(RTTNews) - International Business Machines Corp. (IBM) said Monday after the markets closed that its second quarter profit fell 17% from last year, as revenue declined 13.5%.

However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations, but its quarterly revenue fell short of analysts' forecast.

At the same time, the company maintained its full year operating earnings outlook. IBM now expects a modest increase in free cash flow, improved from its prior expectation of flat.

"Our results for the first half of 2015 demonstrate that we continue to transform our business to higher value and return value to shareholders. 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," said Ginni Rometty, IBM chairman, president and chief executive officer.

IBM shares are currently losing 5.21% in after hours trading after closing the day's regular trading session at $173.22, up 71 cents. The shares trade in a 52-week range of $149.52 to $196.40.

For the second quarter, Americas revenues fell 8% from last year to $9.8 billion, while Asia-Pacific revenues slipped 19% to $4.3 billion and Europe/Middle East/Africa revenues dropped 17% to $6.6 billion.

Revenues from the so-called BRIC countries were down 35% in the second quarter.

The company's global technology services segment reported second quarter revenue of $8.1 billion, down 10.5% from a year earlier. Global business services segment's revenue for the quarter fell 12% year-over-year to $4.3 billion. IBM is the world's biggest computer services firm.

The estimated services backlog at the end of the second quarter was $122 billion, up more than 1% year-to-year adjusting for currency.

IBM's software revenue for the second quarter fell 10% year-over-year to $5.8 billion. Cloud revenue for the quarter was up 50% year-over-year, or up 70% adjusted for currency and divested businesses.

Second quarter revenues from the company's Systems Hardware segment dropped 32% year-over-year to $2.1 billion. Revenues from System z mainframe server products increased 9% year-over-year. IBM is the world's biggest server maker.

IBM is selling low-margin businesses to improve profitability. Last year, IBM sold its x86 server business to China's Lenovo Group Ltd., the world's largest PC maker, for about $2.3 billion in a cash and stock deal. In October, IBM announced the sale of its Microelectronics business to Globalfoundries, an investment arm of the government of Abu Dhabi, for a cash consideration of $1.5 billion to Globalfoundries, that will be adjusted against working capital.

IBM said in April that it was establishing a Watson Health Cloud that will provide a secure and open platform for physicians, researchers, insurers and companies focused on health and wellness solutions. The company also said it is collaborating with Apple Inc. (AAPL), Johnson & Johnson (JNJ) and Medtronic plc (MDT) to create new health-based offerings that leverage information collected from personal health, medical and fitness devices.

Last month, IBM bought Blue Box Group, Inc., a managed private cloud provider built on OpenStack. Through Blue Box, IBM will help businesses rapidly integrate their cloud-based applications and on-premises systems into OpenStack-based managed cloud.

For the second quarter ended June 30, 2015, the Armonk, New York-based technology giant reported net income of $3.4 billion or $3.50 per share, compared to $4.1 billion or $4.12 per share for the year-ago quarter.

Income from continuing operations for the second quarter was $3.5 billion or $3.58 per share, compared to $4.3 billion or $4.23 per share in the prior year quarter.

Excluding items, operating earnings from continuing operations for the second quarter were $3.8 billion or $3.84 per share, compared to $4.5 billion or $4.43 per share in the second quarter of last year.

On average, 19 analysts polled by Thomson Reuters expected the company to earn $3.78 per share for the second quarter. Analysts' estimates typically exclude special items.

Big Blue's total revenue for the second quarter fell 13.5% to $20.81 billion from $24.05 billion in the same quarter last year. Seventeen analysts had a consensus revenue estimate of $20.95 billion for the second quarter. This marks the 13th straight quarter the company has reported lower revenue. Looking forward, IBM continues to forecast 2015 operating earnings of $15.75 to $16.50 per share. Analysts currently expect the company to earn $15.88 per share for the full year 2015.