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Big Blue notches up SIXTH quarter of poor growth

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IBM's third-quarter earnings for 2013 missed estimates by a billion dollars, thanks to an ugly environment in China and continuing weakness in the company's hardware division.

The technology giant reported a net income of $4bn from revenues of $23.7bn on Wednesday, representing a rise in profits by 5.7 percent on the same quarter a year ago, but a 4.1 percent slump in revenue.

It sought to reassure investors that this quarter was due to some unforeseen factors, such as slow public-sector spending in China, along with tough environments for some of its software divisions. But since this marks the sixth quarter in which IBM has delivered flat to negative revenue growth, the company seems to be suffering from perpetual dog-ate-my-homework syndrome.

"We have had some very discrete difficulties as we've gone through the quarters," IBM's chief financial officer Mark Loughridge said on a call discussing the results.

Wall Street analysts had expected a revenue of $24.74bn, over a billion dollars above the figure IBM reported. Big Blue's shares were hit by the results and were down by 5.8 percent in after-hours trading.

IBM's business is having trouble on several different fronts, the company indicated in its earnings statement and subsequent conference calls, with slumps in sales in Asia and a major decline in hardware worrying investors.

Revenues for the quarter were split between the systems and technology division bringing in $3.2bn (down 16.6 percent on Q3 2012), the software segment doing $5.8bn (up 0.6 percent), a cool $9.5bn in global technology services (down 4.3 percent), $4.5bn in global business services (up 0.4 prcent), $502m in global financing (up 6.5 percent), and $122m in other.

It's an open secret that IBM is trying to sell its System x and Bladecenter server businesses to Chinese PC and system maker Lenovo, and with the results posted on Wednesday it's not hard to see why.

Total hardware systems revenues fell 19 percent compared with the third quarter of 2012, including an 18 percent slump in System x, a 38 percent fall in Power Systems, and an 11 percent decline in System storage.

IBM blamed the poor performance in hardware down to an eye-watering 22 percent slump in sales in China, which saw hardware sales to the country fall by a whopping 40 percent. This occurred because China is working on a new economic development plan and so some contracts haven't been happening, IBM executives said.

The falloff of business in China dragged down the Asia Pacific wing of Big Blue by 15 percent compared with the same quarter a year ago – whereas there was a one-percent decrease in the Americas, and a 2 percent fall in Europe and the Middle East.

"In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue," IBM's chief executive officer Ginni Rometty, said in a canned statement. "Where we had identified high growth opportunities and pursued them aggressively – cloud, mobile, business analytics, and security – we continued to show strong growth. This underscores our strategy to continuously transform the company to high value".

That transformation may take time though: in this quarter IBM said that its "cloud" revenues now "exceeds $1bn" of which $460m is delivered-as-a-service, some of which comes from the company's strategically crucial buy of SoftLayer.

With one of its strategic areas representing somewhere under 5 percent of total revenues, IBM has a long way to go to re-tool its business for significant growth, we reckon. ®

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