IBM’s results raise IT spending concerns
IBM posted positive quarterly results, but they were weaker than enterprise rivals, leaving some analysts worried about businsess IT sales.
The company’s earnings beat forecasts and it increased its 2011 earnings-per-share outlook but it faced a high hurdle after recent strong reports from Oracle and Accenture, and analysts focused on slower expansion in key regions and businesses.
IBM said total services signings – an indicator of future growth – climbed to $12.3 billion in the third quarter, in line with expectations.
In the second quarter, IBM trounced expectations with signings of new business surging 16%. At the time, that stellar performance raised hopes that 2011 would be a good year for overall tech-spending.
I wouldn’t say we’re falling off a cliff, but there is a slowing in IT spending
“The growth rates IBM experienced in each of the regions – Americas, Europe and Asia – are all decelerating and the public sector is exhibiting no growth,” said Shebly Seyrafi, an analyst at FBN Securities. “I wouldn’t say we’re falling off a cliff, but there is a slowing in IT spending.”
Revenue rose 8% to $26.16 billion, marginally softer than the average forecast of $26.26 billion. IBM reported a third-quarter profit, excluding items, of $3.28 per share, up 15% year over year and above expectations of $3.22.
IBM said revenue from cloud computing in the first nine months of this year was twice as much as in full-year 2010.
“Whatever IBM could control, they did a great job. But they are not immune to macro conditions. Financial conditions are tough,” said Global Equities Research analyst Trip Chowdhry.
“People don’t want to cancel projects, but projects are getting delayed. Sales cycles are getting elongated. New projects are getting smaller budgets.”
Further stoking worries about IT spending, VMware posted quarterly profit above expectations but warned of uncertainty among some of its corporate customers in Europe.
“We have seen a bit more scrutiny and higher levels of approval required,” said VMWare Chief Financial Officer Mark Peeking. “Particularly with larger deals where they would go for CFO and CEO approval, where in the past we may not have seen those approvals to be necessary.”