Tags: IBM | cloud | growth | fears

IBM's Revenue Slump Stokes Growth Fears

Thursday, 17 Oct 2013 11:30 AM

IBM Corp.'s shares opened 7 percent lower after a drop in hardware sales in the latest quarter reinforced concerns about the company's ability to grow as it focuses more on software and cloud services.

International Business Machines Corp. said hardware revenue fell 17 percent in the third quarter and that profitability in the business had 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."

"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.

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.

IBM, which sold its personal computer business to Lenovo Group Ltd. in 2005, has been shifting itself to become 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.

Earlier this year, IBM's talks with Lenovo to sell off its low-end server business failed.

The J.P. Morgan analysts said IBM may 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 $175.49 on the New York Stock Exchange on Thursday morning. They touched a two-year low of $172.57.

© 2017 Thomson/Reuters. All rights reserved.

   
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IBM Corp.'s shares opened 7 percent lower after a drop in hardware sales in the latest quarter reinforced concerns about the company's ability to grow as it focuses more on software and cloud services.
IBM,cloud,growth,fears
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2013-30-17
Thursday, 17 Oct 2013 11:30 AM
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