Bloomberg News

IBM Sees Discouraging Economy as Company Tries to Spur Sales (2)

December 11, 2013

International Business Machines Corp. (IBM:US), the world’s largest provider of computing services, continues to face economic challenges as it tries to reignite declining sales, Senior Vice President Erich Clementi said.

Demand for technology services, IBM’s biggest source of revenue, “depends on what the economic climate is, and that has not been very encouraging,” Clementi said at a Bank of Montreal conference in New York yesterday. “Europe has shown signs of recovery. North America has been a little more uncertain.”

Many businesses remain wary about spending money on physical assets, such as computer hardware, machinery or warehouses. Instead, they’re using software and cloud-computing services to increase efficiency and reach more customers over the Internet. While IBM ultimately expects to benefit from that shift to the cloud, the hardware slump has contributed to six straight quarters of declining revenue.

“The big bet is on cloud and the software that are on top,” Clementi said.

SoftLayer Technologies Inc., a cloud-computing storage provider that IBM acquired in July, will help the company compete with rivals like Amazon.com Inc., he said. IBM paid about $2 billion for the Dallas-based company, a person with knowledge of the deal said earlier this year.

The Armonk, New York-based company’s total sales slid 4 percent last quarter from a year-earlier period. IBM also posted its first-ever revenue decrease in traditional growth markets in the period, with sales in China tumbling more than 20 percent.

Earnings Goal

Even so, the company is still targeting earnings of $20 a share in 2015. To help reach that goal, IBM will continue its shift into higher-margin business and focus on cloud computing, Clementi said.

IBM reported more than $1 billion in revenue from cloud products and services last quarter -- the first time it has disclosed sales from that category. The move followed an investigation by the U.S. Securities and Exchange Commission into the finances surrounding IBM’s cloud business.

IBM shares slid 1.1 percent to $175.20 at the close in New York, reaching the lowest price since October. They have declined 8.5 percent this year, compared with a 21 percent advance for information-technology stocks in the Standard & Poor’s 500 Index.

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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