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A Mixed Quarter for IBM

Posted on Tuesday, Nov 6th 2012

Gartner estimates that worldwide IT spending will grow 3% this year to $3.6 trillion. The researcher projects that number to grow another 4% in 2013 to surpass $3.7 trillion. IDC has more aggressive estimates and projects that current year IT spending will grow 6% over the year to $3.8 trillion. But while both researchers are predicting increased IT spending, the still weak economy continues to hurt the bigger technology players for now.

IBM’s Financials
IBM’s (Nasdaq:IBM) Q3 revenues fell 5% over the year to $24.7 billion, missing the market’s estimate of $25.36 billion. This was the fifth consecutive quarter that the company missed revenue expectations and reported revenues lower than the previous year. EPS of $3.63 was, however, ahead of the Street’s expectations of $3.62.

IBM attributed its disappointing revenue performance to the euro crisis and currency fluctuation. IBM’s non-U.S. revenues account for 65% of its revenues, and currency movements hurt revenues by $1 billion this quarter.

By segment, revenues from Global Technology Solutions fell 3.9% over the year to $9.9 billion. Global Business Solutions’ revenues also reported a decline of 6% over the year to $4.5 billion. Software sales fell 1% to $5.8 billion, while systems and technology revenues declined 13% to $3.9 billion. IBM’s Global Financing division saw revenues fall 9% to $0.5 billion, and other revenues came in 16% below the previous year at $0.2 billion.

Revenues from Americas fell 4% to $10.4 billion, while revenues from EMEA regions fell 9% to $7.2 billion, hurt by the currency movements. Emerging markets continued to help IBM as revenues from Asia-Pacific grew 1% to $6.5 billion and from the BRIC nations grew 4%.

For the current year, IBM maintained its EPS estimate of at least $15.10, compared with market predictions of $15.15.

IBM’s Inorganic Growth
IBM continued on its acquisition spree during the quarter. It recently announced plans to acquire Butterfly Software, a Berkshire firm, for an undisclosed amount. The acquisition is part of IBM’s growing presence within the software segment. Maidenhead, U.K.-based Butterfly Software is a developer of data analysis and migration software. Its software and tools are used by organizations to plan storage systems and migrate backups between different formats.

Earlier last quarter, IBM also bought solid state storage maker Texas Memory Systems. Texas Memory Systems was a privately held firm that offered high-performance flash based rack systems and interconnect cards. The acquisition is expected to help IBM strengthen its solid state storage data center offerings.

Of late, technology giants have been picking up HR services firms. Earlier this year, Oracle acquired Taleo and SAP bought SuccessFactors. Many believed that it was IBM’s turn to buy an HR services firm. IBM did so by acquiring Kenexa Corporation for $1.3 billion.

Kenexa provides recruiting and talent management software and services. Its software and services span the entire value chain of employment, recruitment, assessments, compensation, learning management, surveys, and social business. Kenexa boasts of more than 8,900 customers across multiple verticals. IBM plans to integrate Kenexa’s front office software with social technology, consulting, and other tools so that it will be able to offer customers tools for a more efficient workforce management.

IBM’s stock is trading at $194.14 with a market capitalization of $219.36 billion. It touched a 52-week high of $211.79 last month.

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