Amid Effort to Transform Itself, IBM Sees Lower Q3 Earnings

Company cuts year-end forecast after third consecutive quarter of declining earnings

IBM reported earlier this month that its revenue slid to $19.3 billion in the third quarter, a 14-percent decline from one year prior.

It’s the third consecutive quarter the multinational tech company has reported lower earnings. IBM’s net income from continuing operations came in at $3.3 billion in the third quarter, down 11 percent from a year prior, while its diluted earnings per share came in at $3.34, down 9 percent from the third quarter of 2014.

On the heels of IBM’s latest earnings miss, company executives downgraded their forecasts for full-year profits to $14.75 -$15.75 per share. Previously, IBM officials said they’d expect to see a profit of $15.75 to $16.50 per share at the end of the year.

“This quarter, we fell a little short of the revenue expectations we set for ourselves,” Martin Schroeter, IBM’s senior vice president and chief financial officer, mentioned in the earnings report remarks.

Company officials blamed IBM’s performance in the third quarter on fluctuations in foreign exchange rates, especially the weakening of the Chinese Yuan and Indian Rupee against the U.S. dollar.

(Photo courtesy of Wikimedia)

In the U.S., IBM’s revenues slid 4 percent in the third quarter. While IBM reported strong growth in some of its largest markets, like Japan and Germany, it faced steep declines in some other regions—particularly in the BRIC countries of Brazil, Russia, India, and China, where revenue fell 30 percent from the third quarter of 2014.

Despite seeing tepid results in the BRIC countries, IBM is continuing to bet on its cloud services in Brazil. The company recently opened a second cloud data center in the country in September. IBM has also highlighted India as a bright spot, saying it plans to invest in expanding existing businesses and supporting development of new entrepreneurial ventures there.

Conceptually, the reason for the decline in IBM’s earnings probably lies in the company’s transitional mode: it has been making an effort to catch up with the changing industry landscape. Some of the company’s core businesses like storage or consulting services for enterprise-level application implementations suffered from weaker-than-expected growth in the third quarter.

On the other hand the company has nevertheless seen some growth in its newer businesses: compared to one year prior, its mobile segment has quadrupled, its cloud services are up more than 65 percent, and its business analytics services have grown 19 percent.

Company officials said that, moving forward, they hope to focus on leveraging IBM’s Watson division, as well as developing IBM’s recently launched cognitive computing business.

“In the last 90 days, we’ve committed more capital, including the acquisitions of Merge Healthcare, to give Watson the ability to ‘see’ millions of medical images, along with Cleversafe, Compose, StrongLoop and Meteorix, each bolstering our Cloud capabilities,” Schroeter stated. “We also just launched the industry’s first consulting practice dedicated to cognitive business.”