Monday was not a great day for IBM as they reported the sharp decline of the company's profits and sales in the third quarter. The slump, which was viewed by the analysts as a sign of weakness, has sparked queries on the developments of the company's evolution to new businesses.
Based on IBM's third-quarter report, the American multinational technology and consulting corporation revealed that their net profit dropped 14 percent to $3 billion. While its operating earnings fell 9 percent to $3.34 per share. New York Times also noted that the company lowered its revenue forecast for the year to $14.75 to $15.75 a share, compared to its previous guidance of $15.75 to $16.50 a share. In after-hours trading, IBM shares also declined 5 percent to $141.95.
Since the market is quickly changing, Sanford C. Berstein & Company analyst A.M. Sacconaghi said that the decline in IBM's sales and profits proves that the company "can't move fast enough." FBR Capital Markets analyst Daniel Ives also echoed Sacconaghi's statements.
"This is another example of the massive headwinds that large-cap traditional tech stalwarts are seeing in this ever-changing environment, as more customers move to the cloud," Ives said.
Since most of IBM's business is overseas, the decline in the company's profits is attributable to the strength of the dollar. Thus, IBM's chief financial officer Martin Schroeter told analyst through a conference call that the sales in Brazil, Russia, India and China when combined slump to 30 percent. Schroeter also noted that China was particularly hard struck as fewer deals caused the revenue from the Chinese nation to drop 17 percent, as per Reuters.
For IBM's revenue shortfall, Schroeter further pointed out the weakness in its consulting and storage businesses.
"I would characterize it as the consulting and systems integration business moving away from these large, packaged applications and the storage business moving to flash and to the cloud," Schroeter said.
Even though IBM aims to re-create itself as a provider of cloud computing and data analytics, the transition carried risks that caused majority of its sales to slump. And with the imminent global economic slowdown and a strong dollar hampering revenue earned overseas, its existing business still needs more care and attention, Bloomberg Business reported.
Despite its strategic imperatives, IBM is still dependent on big software deals, which take time to secure, while it still needs to invest in new businesses that show promising early results.
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