Hardware Sales, China Market Drag IBM Revenue South 4 Percent

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For hardware, only IBM's System z mainframe business saw solid growth, with revenue up 6 percent over last year. The company's microelectronics OEM business was nearly flat with a 1-percent growth.

Power Systems server revenue, on the other hand, fell 37 percent year-over-year, while System x server revenue fell 18 percent and storage revenue fell 11 percent.

IBM plans to boost its Power server business by focusing it more on Linux going forward, IBM's Loughridge said.

"Linux is now a larger market than Unix, and is growing exponentially," he said.

IBM also saw double-digit growth in its Storwize storage business and strong growth in its flash storage business, he said.

IBM's software revenue rose 1 percent over last year to $5.8 billion, led by a 14-percent growth in its social workforce solutions and a 12-percent rise in its Rational branded software sales. Information management and Tivoli-branded software sales both rose by 2 percent over last year, while sales of WebSphere software were flat.

On the services side, IBM's Global Technology Services (GTS) revenue fell 4 percent to $9.5 billion, while its Global Business Services (GBS) revenue was flat at $4.6 billion.

However, Loughridge said, IBM's services backlog grew 2 percent over last year.

IBM's cloud revenue is up over 70 percent year-to-date compared to last year to about $1 billion. IBM reported about $460 million in revenue from cloud services.

The Federal shutdown so far has had no impact on IBM, Loughridge said.

Federal business accounts for less than 3 percent of IBM's total revenue, he said. "It turns out the bulk of our federal business is not exposed, or if it is exposed, it's deemed essential," he said.

Should the shutdown last through October, IBM expects no meaningful impact to its overall business, Loughridge said. A shutdown through November could start to have a meaningful impact, while one lasting through December could cause earnings-per-share to fall 5 cents, he said.

The biggest impact of a federal spending slowdown is on IBM's global business services business, he said.

Looking ahead, Loughridge said IBM is maintaining its full-year non-GAAP earnings-per-share expectations of at least $16.25, with $20 per share still being projected for fiscal year 2015. Full-year GAAP earnings-per-share is slated to be at least $15.01.


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