Midday Report: IBM's Earnings a Rare Miss, Warning Sign for S&P

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Big Blue shares are deep in the red: IBM's (IBM) rare miss with its quarterly earnings has sent its stock tumbling.

In early afternoon trading, the stock was down more than $15 a share, a drop of almost 7.5 percent – and that's weighing on the broader market.

It also carries a warning for already nervous investors about the direction of the broader market. The research group Bespoke notes there's a strong correlation between the movement of IBM's stock immediately after its earnings and the direction of the S&P 500 for the following five weeks.

As for the numbers: IBM's earnings edged slightly lower in the first quarter, while total revenue fell 5 percent. And it's the revenue number that has analysts worried.

This is the first miss for IBM in eight years, which makes the numbers even more shocking.

All of the company's major segments reported that revenue fell in the first quarter. That includes a four percent drop in the services unit, which accounts for more than half of the IBM's total revenue. Its software and hardware divisions also declined.

The company blames a number of factors, including economic unrest overseas, as well as the failure of its sales division to close on several large contracts.

IBM is making some immediate moves to turn things around.

Company officials say they will speed up plans to cut its workforce, and it may sell some businesses.

There are reports that IBM is near a deal to sell its low-end server business to Lenovo. That sale could worth as much as $4.5 billion dollars. Lenovo is the same China-based company that bought IBM's personal computer business back in 2004.

Going forward, IBM says it expects to post improved second quarter results, helped by the closing of those deals that it was unable to complete in the first quarter. The company also says it remains on track to meet its full-year and long-term targets.

The research firm Zacks says a strong order backlog will boost revenue. But IBM remains a company in transition, and it could take some time recover.

–Produced by Drew Trachtenberg

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IBM was missing numbers and in a lot bigger trouble a long time ago too (about 15-20 years ago) and that was way before Obama. Grow up, ALL companies are like tools, they break, they wear out, or become obsolete sooner or later.

April 22 2013 at 2:11 AM Report abuse rate up rate down Reply

To say that IBM remains a company in transition is to imply looming difficulties. IBM REVELS in ALWAYS being a co. in transition...from low margin to hi margin business, seeking always to develop & adopt new technologies. While revenue of course has to grow, all other metrics are up despite the stagnant revenue because the sales are higher margin hardware/software/services. However, I'm uncomfortable with the blame on unrest overseas and the alleged failure to close on several large contracts. If so, then why deliberately reduce employee headcount? The contracts will eventually close (and indeed, they are predicting a good next quarter b/c this) and we will ALWAYS have some level of unrest overseas.

April 20 2013 at 4:00 PM Report abuse +1 rate up rate down Reply

IBM fails to close several large contracts- blame Obama, because thats what conservatives do. Of course IBM will cut thier workforce. Business 101 there are two ways to bolster profits, raise revenues or cut expenses, and payroll for most business is the largest and easiest expense to cut. No doubt IBM senior execs will be rewarded with millions of dollars in bonuses for excercising their acute business acumen and management brilliance for doing this..............

April 20 2013 at 12:14 PM Report abuse -1 rate up rate down Reply
1 reply to Joseph's comment

I blame President Obama too darling and I am no conservative dear.

April 20 2013 at 2:09 PM Report abuse +1 rate up rate down Reply

Thanks to obama, we should start learning Chinese, choose a dialect. His intent to cripple and bring the country to its knees, even it pains the citizens, is working. IBM, bit by bit will sell portions of the company to our Lender, with that goes the technology and you guess the rest.

April 19 2013 at 9:52 PM Report abuse -1 rate up rate down Reply