IBM Corp’s Software Sales Weaker Than Expected in Second Quarter

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International Business Machines Corp’s software business grew less than expected in the second quarter, sparking a selloff in the company’s stock on Thursday, even as its revenue beat forecasts.The company’s software business revenue grew 1 percent in the quarter to $6.5 billion, slower than forecasts of 3 percent, as it signed fewer contracts than expected.

“We expect acceleration of software revenue to mid-single digits in second half of 2014,” IBM Chief Financial Officer Martin Schroeter said on a conference call after the results were released. IBM, the world’s largest technology company, has been attempting to restructure its business to focus on high-end products like Cloud, mobile security and Big Data. The company estimates that software will bring in half of its profits by 2015.

“Software is a big business no question, but 1 percent growth in what many have thought of as their key growth driver is worrisome,” he said. IBM shares slid 1.9 percent in after-hours trading to $188.89 after closing at $192.49.

In January, IBM sold its customer care business, which brought in approximately $1.2 billion in full year revenue in 2013, to hardware distributor Synnex Corp, a sale the company expects to negatively affect revenue comparisons by $300 million per quarter.Last quarter, the company saw a $870 million restructuring fee, which was largely completed and contributed to savings quarter over quarter.

IBM reported free cash flow of $3 billion and buybacks of $3.7 billion, down from $8.2 billion last quarter. The company also saw growth in its strategic sectors as business analytics was up 7 percent, cloud revenue grew 50 percent, and security revenue rose 20 percent.

Revenue in the Americas fell 1 percent, while revenue dropped 9 percent in Asia Pacific.

Filed in: Business, News

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