IBM shares have fallen to its lowest levels since 2010 after providing a 2015 EPS guidance cut to go with mixed Q3 results, and reporting continued top-line pressures in many key businesses. Analysts have cut their targets, but none have downgraded.
EMEA sales fell -16% to $6.1bn as revenue from BRIC markets also fell 30% yr/yr (7% exc. forex and the x86 sale). "Cloud delivered as a service" revenue" is on a $4.5bn/year run rate, the same as Q2 and up from $3.1bn a year ago. Analytics revenue rose 9%, and total "strategic imperatives" revenue (cloud, security, analytics, mobile) 17%.
On the earnings call, CFO Martin Schroeter stated Q3 sales were pressured by a longer-than-expected "transformation" timeframe for Global Business Services (GBS) "as the market shifts away from some of the more traditional application areas" (due to cloud adoption?), as well as weak storage demand amid growing industry adoption of flash arrays - that's potentially a positive for newly-public flash array vendor/IBM rival Pure Storage. Schroeter also mentioned transactional software revenue weakened towards the end of Q3, and that both GBS and transactional challenges will weigh on Q4.
GBS revenue fell 13% Y/Y in Q3, storage revenue 19%, and software revenue 10%. Excluding forex, the declines were 5%, 14%, and 3% (suggestive of moderate market share loss). Software accounted for 43% of IBM's Q3 operating profit. Stifel's David Grossman: "We wonder whether the significant downward revision to guidance reflects an attempt to reset the bar for next year ... We have lowered our 2015 EPS from $15.71 to $14.75 (consensus was $15.67) and 2016 from $16.36 to $15.30 (consensus $16.04), which assumes flattish revenue growth in 2016.”
Bernstein's Toni Sacconaghi thinks 2016 could be even tougher than 2015, given a declining services backlog, the rolloff of currency hedges, a lack of a mainframe/Power system upgrade cycle, lower "non-operating gains," and ongoing strategic investments.
