IBM announced its Q1 2013 earnings today, reporting net revenues of $23.4 billion and earnings per share of $3.00. EPS was an improvement over last year’s numbers (of 8 percent), while revenue was down 5 percent, or 3 percent adjusting for currency. Flat software revenue and down service revenue is what led to the overall shortfall in terms of analyst expectations.
Since IBM divested itself of its PC business in a sale to Lenovo back in 2004, it’s been able to focus on service offerings and build that into a strong business, which continues to prove to have been an almost prescient decision in the wake of the PC market’s continued softness. A report last year from The Verge indicated that IBM’s choice of buyer for its hardware division, Lenovo, was due mostly to the company trying to curry favor with the Chinese government. That, too seems to have paid off well for Lenovo, which has beat estimates for five consecutive quarters. Still, those normally strong areas of services and software were either flat or down compared to last year’s numbers.
Lenovo’s software revenue was $5.6 billion for the year, flat year over year, and service revenue was down 4 percent annually for a total of $9.6 billion. Systems and technology, which represent its remaining hardware assets, were $3.1 billion, down year over year a significant 17 percent as the PC market continues to suffer. Total operating profit margin for the quarter was 46.7 percent non-GAAP, with net income up 3 percent to $3.4 billion.
Watching how the stock performs after market is a strong indicator of the S&P 500’s general progress, analyst firm Bespoke Investment Group notes, so many will be watching to see how the market reacts to this underwhelming earnings picture.