IBM is continuing to struggle with declining revenue, which peaked in 2011 and 2012 but has dropped quickly since. Zero Hedge notes that 3Q15 was the company’s 14th consecutive year-over-year revenue decline, hitting 13.9% and the lowest amount since the first quarter of 2002. The article notes that “non-GAAP EPS of $3.34 beat expectations of $3.30 but once again thanks to the same trick the company used two quarters ago: it again reduced its effective tax rate from continuing operations down to 18.2%, 2.6% lower than a year ago. Without this reduction, and the $1.5 billion in stock buybacks, non-GAAP EPS would have missed.”
As Gartner has pointed out with regard to worldwide IT spending, the strength of the dollar relative to other currencies has had an impact on the numbers. But as the Zero Hedge article notes, a company like IBM can take steps to hedge against the strengthening dollar. “Oddly while the company was quick to blame the soaring USD for its earnings debacle, a dollar whose direction even the most inexperienced CFO could and should have hedged months ago, there is little discussion of why IBM is engaging in such petty gimmickry.” Moreover, IBM is one of many technology companies spending hand over fist on its own stock. In 2014, it spent about $13 billion, although in 2015 thus far, it’s closer to $3 billion or $4 billion.
The company is still profitable, however, having net income of about $3 billion for the quarter. (Income from continuing operations, however, still declined 14.3%.) In one sense, it’s not entirely appropriate to focus exclusively on growth: a company whose revenue declines but whose profit rises may still be successful, particularly if it is aiming to slim down operations. Like other aging technology companies like HP and Microsoft, IBM faces a number of uncertainties about its direction. It has managed to skate by tough times in the past, but it may be facing another period of turmoil in the near future if current trends continue.
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