Reuters: Global Markets: IBM's China-driven revenue slide raises growth fears

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IBM's China-driven revenue slide raises growth fears Oct 17th 2013, 18:21 Share this Email Print Reprints A man passes by an illuminated IBM logo at the CeBIT computer fair in Hanover in this February 27, 2011 file photo. Credit: Reuters/Tobias Schwarz/Files By Soham Chatterjee Thu Oct 17, 2013 2:21pm EDT (Reuters) - IBM Corp shares fell more than 7 percent on Thursday after a surprisingly steep drop in hardware sales in China fueled concerns the company is struggling to sustain growth through its emerging markets business. International Business Machines Corp, which is moving steadily into higher-margin businesses such as software and cloud computing, reported a worse-than-expected 4 percent dip in third-quarter revenue, its sixth straight quarterly decline. Much of that came from a 17 percent slide in overall hardware. Profitability in that business declined by $1 billion so far this year. At least eight brokerages cut their price targets on the stock by as much as 9.5 percent to between $160 and $220, while analysts at UBS Investment Research downgraded the stock to "neutral" from "buy. The latest quarterly disappointment deals another blow to Chairman and CEO Ginni Rometty in her first year as head of the board. Including Thursday's plunge, IBM's stock has slid 15 percent since she stepped up as chairman versus the S&P 500's 18 percent gain. "We are concerned about future earnings power. IBM has been successful in multiple computing waves in the past but we believe the execution issues combined with the weak IT spending environment will hold back any potential revenue growth," UBS analysts said in a note to clients. Chief Financial Officer Mark Loughridge blamed much of the revenue decline on China, which accounts for about 5 percent of IBM's business, and about 40 percent of that business is hardware. He said the country was working on a nationwide economic reform plan ahead of a major November government plenary session, which in turn depressed sales. He did not elaborate. Much of China's corporate sector is dominated by the state in a centrally planned economy, and government enterprises often hold back on spending in the run-up to major nationwide policy changes. SALES PANGS The world's largest technology services company reiterated its full-year profit outlook, but analysts raised doubts about the company's ability to convert services backlog to revenue. IBM has reported a decline in revenue for six straight quarters. "Software has been the growth engine for IBM and has been one of the key reasons investors held the stock. However, it appears that the engine may have stalled and no longer can outgrow the broader software market," J.P. Morgan analysts said in a note. IBM, which sold its personal computer business to Lenovo Group Ltd in 2005, has been shifting a more software-focused business. IBM has been beefing up its software and cloud services offerings through acquisitions. It bought website hosting company SoftLayer Technologies in a deal valued at more than $2 billion in June and paid about $1 billion to buy security software maker Trusteer in August. Talks with Lenovo earlier this year about selling off IBM's low-end server business failed. The JP Morgan analysts said IBM might just not have the right software products to keep pace with the faster-growing cloud and software services businesses. IBM shares were down 6 percent at $174.91 on the New York Stock Exchange in early afternoon trading after touching a two-year low of $172.57. (Reporting by Soham Chatterjee; Editing by Sriraj Kalluvila, Maju Samuel. Editing by Andre Grenon) Link this Share this Digg this Email Reprints

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