IBM software sales weaker than expected in second quarter

Thu Jul 17, 2014 7:32pm EDT
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By Marina Lopes

WASHINGTON (Reuters) - 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.

"This just isn't a growth story anymore, it hasn't been for a little while," said Scott Kessler an analyst at S&P Capital.

"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.   Continued...

A worker is pictured behind a logo at the IBM stand on the CeBIT computer fair in Hanover February 26, 2011.  REUTERS/Tobias Schwarz