IBM share price drops as Q2 revenue extends streak of declines

International Business Machines Corp, the worlds biggest technology services company, reported on Monday a 13th consecutive drop in quarterly revenue which was weighed down by divestment and a strong dollar, sending shares of the company falling in after-market trading.

IBM said that revenue from continuing operations tumbled 13% to $20.8 billion in the three months ended June 30th from $24.05 billion a year earlier, missing analysts projections for a decline to $20.95 billion. The company, which generates more than half of its sales from abroad, attributed the drop largely to the strengthening of the US dollar and the divestment of its x86 server business to Lenovo Group Ltd. However, even excluding these, revenue was down 1%.

Third-quarter revenue is projected to be roughly the same as the first quarter, about $19.6 billion, the Armonk, New York-based company said. Consolidated net income from continuing operations slid 17% to $3.5 billion in the second quarter, while excluding items, it earned 15% less from a year earlier at $3.8 billion.

The century-old tech giant has so far unsuccessfully adjusted to the new business reality and remains deep in transition as the expanding popularity of cloud computing threatens to undermine its hardware and infrastructure operations. In response, IBM has been selling low-margin businesses such as semiconductors, low-end servers and cash registers in order to focus on high-growth areas such as cloud services, data analytics and security software.

And although the company says that these newer businesses are growing, having warned that the transition “will take some time”, they have so far failed to offset the revenue lost to divestitures. IBM said that revenue from cloud computing increased by 50% from a year earlier and amounted to $8.7 billion over the past year, but investors are yet to be convinced that old tech companies like IBM can successfully transition from their core profile into cloud computing.

A bright spot in IBMs efforts to not become obsolete was a 20% jump in revenue from the so-called “strategic imperatives”, which include the companys new center of focus – cloud services, data analytics, mobile computing and social and security software.

Investment in services continued to weigh on margins, which fell by more than 2%, but are expected to eventually result in higher revenue and profit, IBM CFO Martin Schroeter said. Nevertheless, revenue from technology services slid 10% to $8.1 billion, while business services tumbled 12% to $4.3 billion.

Meanwhile, revenues from the software segment slid 10% to $5.8 billion, while the hardware division generated sales of $2.1 billion for the quarter, tumbling 32% from a year earlier.

IBM Corp settled 0.41% higher at $173.22 in New York on Monday, marking a year-to-date increase of 7.97% and valuing the company at $170.58 billion. Shares, however, slid 5.3% in after-market trading to $164.02. According to CNN Money, the 21 analysts offering 12-month price forecasts for IBM have a median target of $163.00, with a high estimate of $198.00 and a low estimate of $125.00. The median estimate represents a 5.90% decrease from the last price of $173.22.