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IBM reported a 5 percent drop in third-quarter revenue as sales of the company's IT products and services fell across the board -- led by a 13-percent plunge in server and storage system hardware.
IBM, nevertheless, managed to hold the line on net income, reflecting the company's increased emphasis on profitability over revenue growth. "In spite of this revenue decline, we had solid operating profit growth, with pre-tax income up 7 percent and net [operating] income up 5 percent," said IBM Chief Financial Officer Mark Loughridge in a call Tuesday with financial analysts and investors.
For the third quarter ended Sept. 30 IBM reported sales of $24.7 billion, down 5.4 percent from $26.2 billion in the third quarter of fiscal 2011. Net income was $3.8 billion, flat from the same period last year.
"Despite facing challenges," Loughridge said, "that performance reflects our disciplined approach to delivering profit growth."
Some of the negative results could be attributed to one-time events, including the sale of IBM's Retail Store Solutions to Toshiba Technology, a divestiture that reduced total revenue by 1 percent. Earnings took a hit from a one-time $162 million charge for pension-related expenses in the U.K. And currency fluctuations took their toll, reducing revenue by nearly $1 billion.
While business remained steady through the first two months of the quarter, Loughridge said IBM experienced "a falloff in the growth rate in the third month of the quarter." The CFO said the slowdown specifically occurred in the company's Global Business Services operations and its software sales -- the latter due to "a handful of deals that fell out of the quarter." Those deals would have boosted software sales by two percentage points, Loughridge said.
Geographically, the slowdown occurred in North America and several countries IBM designates as "growth markets," specifically Mexico and Australia.
While analysts continued to ask about the September slowdown, Loughridge was reluctant to attribute it to any long-range factors such as economic uncertainty related to the presidential election or the budget debate in Washington D.C.