International Business Machines (IBM) reported another disastrous quarter after the close on Monday. It should have been expected, but apparently the potential for a weak quarter actually wasn’t built into the share price. The stock fell more than 6% to a five-year low on Wednesday.
For the third quarter, earnings actually came in 4 cents better than expected at $3.34 per share. But, revenue of $19.28 billion missed even the most pessimistic estimate the Street had provided. While the average expectation was $19.62 billion, the lowest of all 17 was just $19.292 billion. For the 14th consecutive quarter, IBM saw its revenue decline.
Also underwhelming was management’s forward guidance. For the full year, IBM is expected to earn $14.75-$15.75 per share. Wall Street had been looking for guidance at the high end of that range at $15.68 per share. However, according to CFO Martin Schroeter, the projections reflect currency and divestiture impacts.
Regarding the conference call, a friend of mine pointed out that it was essentially just a bunch of protesting, as two key words were used repeatedly throughout the call: “decline” was used 21 times and “down” was used 34 times.
That’s nearly one mention per minute.
I had expected a lackluster report, but I had also hoped to hear more from the company on its cloud and mobile ventures. At this point, it’s clear that the small September acquisitions of software provider StrongLoop and Workday (WDAY) services partner Meteorix simply aren’t getting the job done fast enough for shareholders. Plus, the $100 billion in share buybacks have done nothing but waste time and opportunity.
What IBM needs is a giant acquisition in this space to prove to shareholders and competitors alike that it’s serious, but that window is closing fast.
Management seems so oblivious to this fact that it’s infuriating. Watson seems cool, but it has to be more than just a marketing gimmick or game show contestant — even if it did win $77,000.
IBM needs to undergo some serious changes if the stock is to ever see its all-time highs above $200 again. But, we aren’t seeing what we need to be seeing, and frankly, I don’t believe CEO Ginni Rometty should get to keep her job.
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