IBM Drops After Hours

IBM (IBM) is a stock that I’m seriously considering for next year’s Buy List. The company reported decent profits after today’s close. The tech giant beat earnings by three cents per share, but that was mostly due to favorable taxes. Their revenue number was terrible. IBM generated sales of $23.7 billion last quarter which was $1.1 billion below expectations.

I still have to look at the details but IBM said it will earn $16.90 per share this year. Given the after hours drop, the stock is going for about 10 times this year’s earnings.

The WSJ notes:

Some analysts were expecting IBM’s technology-services business to return to growth, especially after Mr. Loughridge promised investors on a second-quarter conference call that improvement was in the cards, pointing to a 3% increase in the company’s services backlog. But sales in that division fell 3% to around $14 billion, even as its backlog grew another 2%.

Results in IBM’s hardware group worsened compared with the previous quarter, as revenue fell 17% and the unit swung to a $167 million loss. In the second quarter, hardware sales fell 12%.

Software is typically IBM’s strongest business unit, but growth decelerated to 1%, from 4% growth in the second quarter.

IBM blamed growing weakness in international markets for most of its problems. Sales in that area, called growth markets, fell 9%.

International markets, accounting for about a quarter of the company’s sales, have provided the bulk of IBM’s growth over the past few years, according to Morgan Stanley. But those markets have shown little to no growth in the last six quarters.

Strong companies usually have a way of bouncing back from problems like this. But not always.

Posted by on October 16th, 2013 at 6:40 pm


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