Other technology companies are suffering as well. Intel Corp., the world’s largest chipmaker, reported its fourth straight revenue decline yesterday as customers shunned personal computers, choosing tablets and smartphones instead.
Accenture Plc, the world’s largest technology-consulting company after IBM, gave a sales forecast last month that missed analysts’ estimates. Accenture blamed customers deferring decisions on long-term contracts. Oracle Corp., meanwhile, has missed sales estimates for two straight quarters, hurt by slumping hardware revenue and a shift by customers to applications delivered online.
IBM prioritizes earnings over revenue growth in its five- year road map, which is targeting profit of $20 a share by 2015, up from the $15.25 earned last year. The plan calls for a combination of buybacks, acquisitions and investments in faster- growing markets to reach that goal.
Following the previous quarter’s earnings shortfall, Chief Executive Officer Ginni Rometty shook up the management of IBM’s struggling hardware division. She replaced Rod Adkins with Tom Rosamilia, who had been overseeing corporate strategy. That division saw a 12% decrease in sales last quarter, an improvement from the 17% drop in the first quarter.
IBM also embarked on a restructuring program last quarter, cutting jobs globally. More than 3,300 workers were dismissed in the U.S. and Canada alone, according to Alliance@IBM, an employee group.
The company said in April that divestitures would help offset the $1 billion cost of the restructuring. At the time, IBM was in talks to sell parts of its server division to Lenovo Group Ltd., according to people familiar with the discussions. The negotiations broke down in early May due to disagreements over price, one person said.
Yesterday the company said it was reducing its expectations for second-half gains from a divestiture.
“The substantial second-half gain that we were counting on in our view of EPS will not likely close at the end of this year, but we’re still in active discussions,” Loughridge said. “We have a very disciplined M&A process. We’re not going to underprice or rush a divestiture simply to close within 2013.”
Second-quarter net income fell 17% to $3.23 billion, or $2.91 a share, from $3.88 billion, or $3.34, a year earlier. The company paid $1 billion in dividends and made $3.6 billion in stock buybacks in the period, boosting earnings per share.
The company is seeing growth in high-margin businesses and bookings look promising, Loughridge said.
“We’re exiting the quarter stronger than we entered,” he said.