IBM Conference Call Highlights

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IBM
IBM
reported its third quarter earnings on Monday. Shares of the company are down a whopping seven percent. Below are some highlights from its conference call: Operational Highlights • We reported revenue of $22.4 billion, which is down 4% or 2% at constant currency. • We delivered operating net income of $3.7 billion and earnings per share of $3.68, all excluding the discontinued semiconductor manufacturing business. • These results fell short of our expectations. • First, our software revenue was weaker than expected. We had some sales execution issues. • With a sharp movement in currency rates in September, there was some effect in the quarter, and we expect it to have a larger impact going forward. • For some time now, we've been clear about our strategic direction and how we address the market shifts around data, cloud, and engagement. • All of this year, we've been launching initiatives and making significant investments to drive this shift. We've been very successful, with strong revenue growth in our strategic. • First, we're continuing the remix to higher value. We just took a bold step in our transformation, going fabless with the divestiture of our semiconductor manufacturing business. • We have world-class technologists and intellectual property • GLOBALFOUNDRIES will acquire our microelectronics business and will become the semiconductor technology provider for our future systems. • Also in January, we announced the sale of our x86 business to Lenovo, and earlier this month we completed the initial closing. • This was a $4 billion business for us in 2013 with effectively no annual profit. • We are implementing changes that make it easier to consume our capabilities and innovations and increase our agility. We are creating vertically integrated units to address key growth areas. • We're accelerating investments to make our software more directly consumable through digital channels. • Starting in the fourth quarter this year, we'll no longer have the System x hardware revenue. • At an IBM level, this will result in about a four point impact to revenue growth over the next four quarters but an improved margin profile. Financial Highlights: • Our fourth quarter results will include the gain on sale associated with the countries closed net of related transaction and performance-based costs. • Free cash flow will be impacted by two items: accounts payable for the balances at closing as well as the future procurement IBM will perform on Lenovo's behalf; and for cash tax payments made in 2015. • We estimate this will be a use of cash of approximately $0.5 billion in the fourth quarter and another $0.5 billion in 2015. • We delivered $3.7 billion of operating net income on revenue of $22.4 billion. Revenue was down 4% or 2% at constant currency excluding the divested Customer Care business. • Software segment declined 2%, and Systems and Technology revenue was down double digit. • We had a tax headwind of three points year to year, and we generated $3.7 billion of net income in the quarter. • On the bottom line, we reported operating EPS of $3.68, which is down 10%. Looking at our free cash flow, we generated $2.2 billion, which is relatively flat year to year. • Software revenue of $5.7 billion was down 2% and middleware was flat. • ebSphere had another good quarter, up 7%, led by commerce, mobile solutions, and business integration offerings. • Both on-premise and SaaS offerings contributed to WebSphere growth, with the majority of growth continuing to come from our on-premise solutions. • Across Software and Services, IBM's mobile business more than doubled from the prior year. • Information Management software was down 5%, where we were impacted by our sales execution challenges and some product transitions. • Turning to the balance sheet, we ended the quarter with a cash balance of $9.6 billion. • Our total assets reflect a reduction of more than $1.5 billion associated with the semiconductor transaction. • Addressing engagement on a year-to-date basis, our mobile revenue more than doubled. • Our social offerings returned to growth with double-digit growth in the third quarter; and our Security revenue up over 20%. Guidance: • Our full-year 2013 operating EPS was $16.64 versus $16.28 based on the prior definition. • That net gain will contribute about $0.75 of earnings per share, but that does not reflect the lost profit in the fourth quarter. • Additionally, as we execute some of our plans to drive simplification and accelerate productivity in our business, we expect to take a workforce rebalancing charge in the fourth quarter. • We're starting to work through our plans, but at this point we'd expect to take a charge of up to $600 million. • And so with that included, we see free cash flow for the year between $12 billion and $13 billion at this level of income.
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Posted In: EarningsNews
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