A weak client spending caused an unexpected drop in quarterly earnings and revenue leading the IBM to state that it no longer expects its 2015 operating earnings target of $20 per share to be fulfilled. The effects were evident in the stock market also with IBM shares dropping by 9% in premarket trading.
IBM, the world’s largest technology services company said that it will announce new target in January after a reported 4% drop in revenues as clients pulled their strings and held back on spending in September.
FBR Capital Markets analyst Daniel Ives wrote in an email, “IBM needs to find success and growth in the cloud through organic and acquisitive means in our opinion, otherwise there could be some darker days ahead for the tech giant (and its investors).”
Chief Executive Ginni Rometty expressed disappointment in the results and said in a statement, “We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry.”
IBM revenues have been steadily falling and stood at $22.4 billion in the 3rd Quarter which ended on September 30th. It was $23.4 billion for the corresponding period in the previous financial year. Analysts were hoping a figure of $23.4 billion as per a report by Thomson/Reuters. Net profit fell to $3.4 billion which comes to $3.46 per share, from $4.14 billion, or $3.77 per share in the same quarter last year. After adjustment, the company earned $3.68 per share missing the average analyst estimate of $4.31 per share by a huge margin.
For some time now IBM has been restructuring to shift focus on high end products like mobile security, Big Data, and Cloud. It also plans to chisel off its loss-making semiconductor unit to contract-chipmaker Globalfoundries Inc. In a deal, IBM will pay Silicon Valley-based Globalfoundries $1.5 billion in cash in the coming three years and will relinquish the control of the chip operations and it took a pretax charge of $4.7 billion in the quarter related to the deal.