How IBM’s Divestiture Impacted Its Earnings

By Chris Lange Updated Apr 27, 11:13PM EDT · Published Jan 20, 4:53PM EST

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International Business Machines Corp. (NYSE: IBM) saw a share price loss of 12.4% in 2014 and was the Dow Jones Industrial Average’s (DJIA) biggest loser for the year. Tuesday afternoon’s earnings report will not make up for that.

Big Blue’s fourth-quarter earnings were mixed as $5.81 in earnings per share and $24.11 billion in revenue. Thomson Reuters had consensus estimates of $5.41 in earnings per share and $24.77 billion in revenue. The fourth quarter from the previous year had $6.16 in earnings per share and $27.70 billion in revenue.

IBM reported a gross margin of 53.9% for the fourth quarter, up 60 basis points from the same period of the previous year. Net income was down 13% from the previous year at $5.8 billion.

Across its segments, Big Blue reported sales that all missed on the top line compared with the fourth quarter of the previous year:

Services decreased 8% to $13.5 billion
Software decreased 7% to $7.6 billion
Financing was flat at $532 million
Hardware decreased 39% to $2.4 billion

Much of the losses in the segments was attributable to divestiture as well as in adjustments for currency. It’s worth noting that revenue overall was down roughly 13% from the previous year. However, adjusting for divested businesses and currency revenue is down only about 2%.

Ginni Rometty, IBM Chairman, President and CEO, commented on the earnings:

We are making significant progress in our transformation, continuing to shift IBM’s business to higher value, and investing and positioning ourselves for the longer term.

In 2014, we repositioned our hardware portfolio for higher value, maintained a services backlog of $128 billion and achieved strong revenue growth across cloud, analytics, mobile, social and security. Together these strategic imperatives grew 16% in 2014 and now represent $25 billion and 27% of our revenue.

Recently analysts have been wary of IBM and the direction it’s headed. As we have already stated it was one of the worst run companies in 2014. Barclays lowered its price target to $155 from $160 and maintained an Equal Weight rating on January 14. Jefferies also lowered its price target to $130 from $144 while maintaining an Underperform rating on January 12.

Shares of Big Blue closed Tuesday down 0.1% at $156.95. In post market trading, shares were down 1.5% at $154.50. The company’s stock has a consensus analyst price target of $164.43 and a 52-week trading range of $153.98 to $157.63. It has a market cap of $155 billion.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.