Fri, Jul 20, 2012 - Page 15 News List

IBM raises earnings target despite weak Q2

Reuters, NEW YORK and BOSTON

A man passes by an illuminated IBM logo at the CeBIT computer fair in Hannover, Germany, on Feb. 27 last year.

Photo: Reuters

International Business Machines Corp (IBM) raised its full-year earnings target, even as it posted a quarterly revenue shortfall, reflecting its ability to manage costs as global technology spending sputters.

IBM, a bellwether for the IT industry because of its global span and breadth of businesses, now expects full-year earnings per share — excluding items — of at least US$15.10, versus at least US$15 previously.

Unlike other companies, IBM said it had seen a strong performance last month and chief financial officer Mark Loughridge said he was “pretty confident going into the next quarter.”

Smaller companies such as Informatica said earlier this month conditions “dramatically” worsened last month with customers scrutinizing deals more closely and possibly signaling a broader pullback in tech spending .

Despite Loughridge’s confidence, IBM — like rivals Hewlett-Packard Co and Oracle Corp — continues to grapple with declining corporate budgets as the European crisis tightens spending and emerging market growth decelerates.

The company known as Big Blue has been compensating by shifting its focus from hardware to higher-margin services and software over the past decade, but software revenue was flat in the second quarter and services was down 2 percent.

IBM said on Wednesday its revenue fell 3 percent to US$25.8 billion in the second quarter, missing average expectations of US$26.27 billion. It said it took a US$1 billion hit because of a weaker euro and other foreign exchange headwinds that translate into fewer US dollars.

IBM generates about 60 percent of its revenue outside the US. While revenue in North and South America declined by only 1 percent, the drop in Europe, the Middle East and Africa was 9 percent. In addition, the Asia-Pacific region only grew a mere 2 percent.

The company said second-quarter earnings per share, excluding extraordinary items, was US$3.51, beating analysts’ average estimate of US$3.43.

A multitude of companies such as Cisco Systems Inc have cautioned that tech spending may slow down in the second half of the year, while companies such as Advanced Micro Devices Inc have warned that earnings in the industry would suffer.

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