IBM Reports Sharp Drop In Q4 Revenues, Profits Amid Dicey Cloud Transition

IBM on Tuesday reported sharp declines in fourth-quarter revenue and profits as it was hit with the dual headwinds of a weak global economy and a strong U.S. dollar. Big Blue also continued to show signs that it’s not growing sales in new markets like cloud and mobile computing fast enough to offset declines in traditional enterprise hardware and services, which still account for the bulk of its business.

Shares of Big Blue were off 2 percent at one point in after-hours trading.

Revenue for the period from continuing operations came in at $24.1 billion, roughly in line with estimates but down 12 percent from a year ago. Net income fell 11 percent, to $5.5 billion, while earnings per share totaled $5.54, off 4 percent.

IBM is looking to build out its portfolio of products and services that facilitate cloud, mobile and social computing as well as security technologies. The company said sales in those areas increased 16 percent year-over-year, to $25 billion, or 27 percent of total revenue. “We are making significant progress in our transformation, continuing to shift IBM’s business to higher value, and investing and positioning ourselves for the longer term,” said CEO Ginni Rometty, in a statement.

Now in her fourth year atop IBM, Rometty needs to show she can position the company for a computing industry in which customers increasingly prefer to deploy applications on nimble, scalable cloud systems as opposed to on-premises data centers that are expensive to manage and maintain. To give herself more leeway, she recently abandoned a pledge by her predecessor, Sam Palmisano, to deliver earnings per share of $20 by the end of 2015.

“Transitions are not easy,” FBR & Co. analyst Daniel Ives told Bloomberg. “It’s like trying to turn around a cruise ship in a river. IBM is in a boat where they really need to focus on the next-generation area of spending.”

While IBM’s fourth-quarter numbers show the company is making progress toward the cloud, they also reveal the extent to which it still relies on mainframes and other so-called legacy products for the bulk of its sales. Revenue from mainframes, servers and other hardware totaled $2.4 billion, down a whopping 39 percent (including the impact of currency conversion and product divestitures) from a year earlier.

Software sales were off 7 percent, to $7.6 billion, while sales of services, including technology outsourcing, fell 8 percent, to $13.5 billion.

IBM, like other major U.S. multinationals, also faces sluggish demand from slowing economies in Asia and Europe. The company’s revenues from Europe, the Middle East and Africa were off 8 percent, while sales in Asia-Pacific fell 17 percent in the fourth quarter. The strong U.S. dollar, which has posted big gains against most major currencies in the past year, is also making IBM’s products more expensive abroad while at the same time reducing the dollar value of goods sold in foreign currencies.

IBM is forecasting operating earnings for 2015 of between $15.75 and $16.50 per share.