Hardware business drags IBM down in Q1

Tech bellwether misses Wall Street expectations as revenue declines for eighth quarter in a row

IBM's poorly performing hardware business dragged the company to its eighth consecutive quarter of revenue decline in Q1, disappointing Wall Street and leading to a shares slump.

Bloomberg reported Big Blue's share price plummeted 4.1 per cent in late trading yesterday after sales for the quarter failed to hit analysts' expectations.

For the three months to 31 March, IBM's GAAP net income fell 21 per cent annually to $2.4bn (£1.43bn) on revenue which fell four per cent to $22.5bn - below Wall Street estimates of $22.91bn.

IBM's hardware arm, STG, suffered a 23 per cent annual sales slump in the first three months of the year to $2.4bn, acting as a weight on the other units which on the whole performed much better.

Its Software and Financing businesses enjoyed annual revenue hikes of two per cent and three per cent respectively - propelling revenue to $5.7bn and $512m - while its Services arm's sales fell three per cent annually to $9.3bn.

IBM's chief financial officer Martin Schroeter admitted its hardware business took a hit last quarter for the good of its long-term performance.

"In January, we had the initial closing for the divestiture of our customer care BPO business, and we announced the sale of our industry standard server business to our partner Lenovo," he said. "This quarter, as expected, we took a substantial charge to align our resources and skills to the demand profile we see. This charge impacts our results this quarter, but it will pay back within the year."

But even after the impact of the divestments has subsided, he added on an earnings call that throughout 2014 "overall revenue growth will be impacted by the challenges in our hardware business".

IBM's EMEA business outperformed its Americas and Asia-Pacific counterparts after a return to growth in its German and Italian businesses drove a four per cent hike in sales to $7.6bn. The Americas and Asia-Pacific regions' revenues slumped four per cent and 12 per cent annually to $9.6bn and $5bn respectively.

IBM chairman Ginni Rometty (pictured) said the company is still on track to benefit from her turnaround plans.

"In the first quarter, we continued to take actions to transform parts of the business and to shift aggressively to our strategic growth areas including cloud, big data analytics, social, mobile and security," she said.

"As we move through 2014, we will begin to see the benefits from these actions. Over the long term, they will position us to drive growth and higher value for our clients."