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IBM Corp posted a rare quarterly earnings miss as the technology services company struggled with the depreciation of the Japanese yen and a failure to close a number of major deals, especially in Europe and the United States. Much like Oracle Corp last month, IBM blamed a poor performance by its sales force for some of the shortfall. But analysts said it was not just one quarter - the company's sales have been weakening consistently, dragging down results with or without the changes in the yen.
"Their revenue has been declining for basically many quarters in a row. You can't have revenue declines and consistently expect your earnings to beat. That is catching up with them," said ISI Group analyst Brian Marshall. IBM is known for keeping a tight rein on costs and focusing on high-margin software, allowing it to generally exceed Wall Street expectations, even in a tough economic environment.
But Chief Financial Officer Mark Loughridge blamed poor sales execution for the failed closing of a number of deals, as well as the Easter holiday at the end of March. Around $400 million worth of deals expected to close in the first quarter had been moved into the second, IBM said. On a conference call with analysts, Loughridge also said it was unclear whether the sequester - a series of automatic US federal budget cuts - had an effect.
"It's hard to measure. I can tell you that our US federal business was down 13 percent, which was certainly a drag on the US performance," he said. IBM's first quarter non-GAAP income rose 3 percent to $3.4 billion, or $3 per share, but missed analyst estimates of $3.05 a share, according to Thomson Reuters I/B/E/S. It was the first time it at least nine quarters that IBM missed estimates.
Quarterly revenue dropped 5 percent to $23.4 billion, compared with estimates of $24.6 billion. Revenues fell 3 percent adjusted for currency. For the current quarter, IBM is anticipating a restructuring charge of almost $1 billion and EPS in a similar range to the first quarter. Analysts expected earnings of $3.95 per share in the second quarter. However, Loughridge expected EPS to improve in the second half of the year, allowing IBM to reach its full year target of at least $16.70 per share.
IBM shares lost 3.4 percent from a closing price of $207.15 in extended trading following results. Forrester Research's Andrew Bartels said the results showed IBM was somewhat impacted by the sequester, but that Microsoft's results showed tech spending was not generally down.

Copyright Reuters, 2013

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