IBM Shares Drop after Releasing Lower-Than-Estimates Earnings Report

IBM declined in the first quarter due to economic uncertainty and a falloff in the company’s hardware business that dragged its profits and revenue down. In the past, the company’s cost-cutting discipline as well as its shift towards higher profit offerings to surpass Wall Street’s forecasts even during the recession.

Revenue growth has been modest for IBM and the drop in the first quarter came as a surprise for investors. It reported its revenue for the quarter to be down 5 percent to $23.4 billion compared to same period last year. Net income was down 1 percent to $2 billion.

Analysts are now wondering whether the setback is a temporary one or whether the hardware business will continue to drag down profits and revenue for a longer period. Mark Loughridge, IBM’s chief financial officer, said that the quarter closed weaker than its start.

IBM is the world’s largest supplier of information technology to government agencies and corporations. Its results are seen as a guide to broader trends in business technology spending. Loughridge said that the China market grew only by 1 percent that was attributed to the recent change in Chinese leadership.

He added that the hardware business is facing a longer transition and the mainframe division remains healthy. Units that sell industry standard data center computers that use Intel chips and larger data center computers that use IBM Power chips are having a hard time.

In order to cut costs, IBM planned to take most of $1 billion yearly in charges to slash the payroll in the present quarter. Loughridge added that most of the affected workers would be outside the United States.

IBM’s earnings results were below the estimates made by analysts, which was the first time since 2005. The profit performance was 5 cents below forecasts of $3.05 per share. Operating earnings increased 8 percent to $3 per share.