IBM profit forecast, fourth-quarter revenue below estimates

By Reuters

Jan 20, 2015 07:09 PM EST

International Business Machines Corp posted a new 2015 profit target and quarterly revenue that both missed analysts' estimates, as the one-time world technology leader continues to grapple with its journey from low-margin hardware maker to the new world of cloud computing.Shares of IBM, which is still the world's largest technology services company, but no longer regarded as a leader in innovation, fell 1.6 percent to $154.48 in extended trading.

The Armonk, New York-based company has seen shrinking revenue for three years now as it sheds unprofitable businesses such as its low-end server unit and tries to focus on emerging areas such as security software and cloud services. But the new businesses have so far failed to make up for revenue lost to divestitures.

The company's annual revenue fell to $93 billion for 2014, from $107 billion in 2011. The company had no guarantee that it would not fall further.

"We're not interested in revenue for revenue's sake," IBM Chief Financial Officer Martin Schroeter told Reuters in a phone interview. "We'll continue to divest if something doesn't fit the model."

The struggle to make headway in the new Internet-based technology industry is shared by other longstanding giants.

SAP, Europe's largest software group, on Tuesday cut key profit forecasts and abandoned a target for higher margins.

"IBM as well as other tech stalwarts such as Oracle, SAP, HP and Cisco face major headwinds as they adjust to this new cloud paradigm shift, which coupled with a cloudy IT spending environment have negatively impacted results," said Daniel Ives, an analyst at FBR Capital Markets.

IBM last year withdrew its long-term plan to hit $20 per share in operating earnings for 2015, as it recognized that its transition was faltering.

On Tuesday, IBM forecast 2015 operating earnings of $15.75 to $16.50 per share, just shy of analysts' average estimate of $16.53, according to Thomson Reuters I/B/E/S.

For the fourth quarter, IBM's total revenue fell nearly 12 percent to $24.11 billion. Revenue from hardware fell 39 percent to $2.41 billion.

Net income fell to $5.48 billion, or $5.51 per share, from $6.19 billion, or $5.73 per share, a year earlier.

On an adjusted basis, the company earned $5.81 per share. Analysts on average were expecting a profit of $5.41 per share on revenue of $24.77 billion.

IBM shares closed at $156.95 on the New York Stock Exchange on Tuesday.

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