IBM, the world’s largest technology services company, gave a better than expected 2013 outlook after a solid fourth quarter that analysts say has more to do with Big Blue’s smooth execution than a vibrant tech spending environment.
Companies had been widely expected to hold back on IT purchases in December in part because of worries about the so-called US fiscal cliff. Automatic tax increases and spending cuts would have been triggered had Congress not made a deal to avert the cliff and could have pushed the weak US economy into recession.
But International Business Machines Corp. (IBM) said on Tuesday that its quarterly results beat forecasts and it plans to achieve earnings of at least $16.70 a share for the full year, above analysts’ consensus forecast of $16.57.
While some analysts said IBM’s earnings may be a sign of an improved tech spending environment, others said the strong results were specific to IBM’s business model. “IBM is better positioned in a tough environment than most tech companies are,” said Cindy Shaw, managing director at Discern.
IBM made a bold strategic move a decade ago when it bought PriceWaterhouse’s consulting business and then decided to exit the PC business, betting its future was in finding solutions to business problems with the help of software and technology.
That strategy appears to have paid off.
“What IBM does better than anyone, with the exception of Accenture, is solving problems and I am not talking about taking out some costs, but really driving revenue,” Shaw said.
In addition, she said, IBM was strong in “hot growth markets” such as data analytics, cloud computing, emerging markets and what IBM calls smarter planet, which aims to improve areas such traffic, power grids of food production.
Sterne Agee analyst Shaw Wu agreed, saying the success appeared to be more specific to IBM than the industry in general. “The results show that the IBM advantage and business model—vertical integration of hardware and software—is difficult to replicate,” he said.
“IBM has been doing this the longest and customers are very accustomed to it. They have a much stronger offering and brand name.”
As a result quarterly net income rose 10% to $6.1 billion, or $5.39 a share from $4.71 a year earlier. Revenue dropped 1% to $29.3 billion due to the sale of its retail business in the third quarter.
Analysts had expected the Armonk, New York-based company to report net income of $5.95 billion, or $5.25 a share, on revenue of $29.05 billion, according to Thomson Reuters.
Revenue grew in particular because of an 11% increase in IBM’s growth markets in Brazil, India, Russia and China.
Software revenue was up 3% in the quarter.
Some analysts said IBM’s better than expected results were a sign that tech spending might not have been as bleak as expected.
“It is better than what people had feared,” said Brian Marshall, an analyst at ISI Group. “Virtually every segment did a little bit better than people expected. It supports the fact that things are getting better out there at least from a tech industry standpoint.”
Andrew Bartels, an analyst with research firm Forrester Research, said: “We were expecting a lot of companies were sitting on their wallets until it became clear what was going to become of the fiscal cliff.
“Given the fact it’s Q4 with a cloud of the fiscal cliff, it’s a positive indication that tech software will be doing better in the next couple of months.”
IBM shares rose more than 4% to $204.50 after closing at $196.08 on the New York Stock Exchange on Tuesday. Reuters
Jennifer Saba in New York and Alistair Barr in San Francisco contributed to this story.