IBM Plans Product Line Divestitures, Employee Cutbacks After Disappointing Q1

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IBM took a big hit in hardware sales: Revenue from its Systems and Technology segment dropped more than 17 percent to $3.1 billion from $3.7 billion in the first quarter of last year. Systems and Technology reported a pre-tax loss of $0.3 billion.

Total systems sales were down 13 percent for the quarter. Hit hardest were sales of the company's Power Systems, which plunged 32 percent year-over-year. Revenue from System x sales were down 9 percent. And sales of storage systems decreased 11 percent.

"Weakness in Power, System x and storage resulted in overall declines," Loughridge said. "For Systems and Technology, this is not the quarter we expected."

Later in the call he said IBM would more aggressively expand its line of Power servers for the Linux market.

Loughridge said IBM has sold more than 4,000 units of the "PureSystems" servers it launched one year ago. But, he provided no revenue figures for those sales.

The only real bright spot in Systems and Technology was sales of IBM's System z mainframes. Despite the delayed contracts, revenue from mainframe sales grew 7 percent in the quarter, and the company said total delivery of System z computing power, measured in millions of instructions per second (MIPS) were up 27 percent.

Revenue from IBM's software business was flat year-over-year at $5.6 billion.

Sales of key products including WebSphere, Information Management, Tivoli, Social Workforce Solutions, formerly Lotus software, and Rational were $3.5 billion. WebSphere product sales were up 6 percent, Tivoli product sales grew 1 percent, and Social Workforce Solutions sales increased 8 percent.

But, Information Management product sales declined 2 percent in the quarter and Rational software sales dropped 2 percent. Operating systems revenue was down 2 percent to $578 million.

Loughridge also said the 1 percent increase in revenue from growth markets such as China and Russia was "disappointing." He said that growth should be in the mid-single digits. On the positive side, the CFO said revenue from cloud computing initiatives grew 70 percent in the quarter, while "smarter planet"-related sales were up 25 percent and business analytics sales grew 7 percent.

On the services side, IBM said revenue from the company's Global Technology Services was down 4 percent year-over-year to $9.6 billion. Global Business Services revenue was down 3 percent in the quarter to $4.5 billion. Loughridge said IBM's services businesses "performed as expected," and the company closed 22 service contracts each valued at $100 million or more.

Revenue from IBM Global Financing was up 2 percent to $499 million.


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