IBM's results hampered by slowing hardware sales

System x and Power Systems sales continue to slide, though mainframe sales were strong for IBM

Managing its way nimbly through times of economic sluggishness, IBM reported a 6 percent increase in profit for the third quarter even as its revenue declined.

IBM's third-quarter profit was US$4.0 billion, compared to $3.8 billion in the third quarter of 2012, the company announced Wednesday. Revenue was $23.7 billion, compared to $24.7 billion in the year prior.

"In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue," said Ginni Rometty, IBM chairman, president and CEO, in a statement.

Most noticeably, hardware sales continued to hamper the company's business.

Revenue from IBM's Systems and Technology segment generated $3.2 billion in revenue, down 17 percent from the third quarter in 2012. System x revenue fell by 18 percent, Power Systems revenue fell by 38 percent and storage system revenue fell by 11 percent.

Much of the hardware decline stemmed from China, CFO Mark Loughridge said in a webcast. The Chinese government is preparing a new and comprehensive economic policy, due to be implemented in November. As a result, government agencies are delaying procurements, which hit IBM's hardware particularly hard.

As a result, IBM's business overall in China was down by 22 percent, and IBM hardware sales fell by 44 percent, Loughridge said. While China's new economic plan aims to reduce its reliance on foreign suppliers, IBM doesn't see the downturn as permanent: Sales in China should resume by early 2014, Loughridge said.

Revenue from the Americas, totalling $10.3 billion, decreased 1 percent from the same quarter a year ago. Revenue from Europe, the Middle East and Africa increased 1 percent to $7.3 billion, while revenue from the Asia-Pacific region declined 15 percent to $5.5 billion.

The services divisions produced middling results for the company. Revenue from the Global Technology Services segment decreased 4 percent to $9.5 billion for the quarter, which ended Sept. 30, while revenue from the Global Business Services segment was flat at $4.6 billion.

Revenue from IBM's software segment climbed modestly to $5.8 billion, up 1 percent from the same quarter a year ago.

IBM is looking to the cloud for growth. In July, the company completed its purchase of cloud hosting provider SoftLayer.

Purchasing SoftLayer "significantly improved our capabilities in public and hybrid cloud," according to Loughridge. IBM's cloud revenue was up 70 percent from the same quarter a year ago, the company said. "For the first time, we delivered over a billion dollars in cloud revenue," Loughridge said.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is


Copyright © 2013 IDG Communications, Inc.

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