IBM’s declining revenues have been no secret. For Q1 this year, the global IT giant’s revenues plummeted by 5%, attributable to a suffering hardware business; it announced significant layoffs because of it. Q2 was a little better, and stocks rose 2.21% to US$ 198.85.
Apparently, it wasn’t good enough, because IBM made another big sale this week.
Major Asset Sale for IBM
IBM announced this week it sold its customer care business process outsourcing services to SYNNEX for US$ 505 million -- US$ 430 million in cash and US$ 75 million in stock. Concentrix, a wholly owned subsidiary of SYNNEX, will serve as the brand in the deal for SYNNEX.
It was pretty much an expected move as IBM announced to shareholders earlier in the year it planned to sell off some of its business units to compensate for its recent losses. Plus, it already sold its retail-store systems unit to Toshiba Tec Corp. for US$ 850 million. We reported IBM also had a discussion with Lenovo Group Ltd. about selling one of its business units to them.
SYNNEX Deal Multi-Year
As for the deal, Fortune 500 SYNNEX will continue to work with IBM in a multi-year agreement as Concentrix and IBM now become business partners for global customer care business process outsourcing services. IBM has made investments in a broad software portfolio, cloud technology, consulting and advanced analytics in this customer experience space in order to support global clients.
Concentrix, meanwhile, extends its portfolio quite a bit through the acquisition. It will now provide customer care services for clients in more than 12 industries significantly expanding its global footprint across six continents to approximately 45,000 staff and 50-plus delivery centers.
Lori Steele, general manager for IBM Global Process Services, said its capabilities to provide clients with services in “advanced analytics, social business, cloud and smarter commerce, complemented by Concentrix' flexible and adaptive global customer care delivery network” will strengthen the company.
The transaction is expected to close in the coming months. After the transaction closes, IBM will have an equity interest in SYNNEX.
IBM Q1: Hardware Failures
In addition to a 5% drop in revenues, IBM’s profit performance was 5 cents below expectations of US$ 3.05 a share. This was a pretty significant development -- IBM had met market expectations each year since 2005, an eight-year streak.
Still, IBM reported a profit for the quarter with first quarter earnings of US$ 3 billion on revenue of US$ 23.4 billion, but was down 5% on the same period last year. Software sales in Q1 showed revenues of US$ 5.6 billion, which showed no significant progress.
IBM Q2: Marginal Improvement
News from IBM’s Q2 report ignited some confidence in investors -- shares rose 2.21% to US$ 198.85 in extended trading. Tuesday of this week, it was at US$ 186.6, up 0.88%.
However, global sales still dropped. In North America they fell by 3% to US$ 10.7 billion, while EMEA (Europe, Middle East, Asia) was stagnant with sales of US$ 7.8 billion, as were the BRICS (Brazil, Russia, India, China, South Africa) countries.
Overall, sales were down in Q2, which ended June 30, by 3.3% or US$ 24.9 billion, but still better than Q1 where sales were down 5.1 percent. Net income was down too on the year, this time by 16.9% to US$ 2.23 billion, including the US$ 1 billion spent on lay-offs, but compared with Q1 it was up 6.6% from US$ 3.03 billion.
IBM’s layoffs -- 60% from the services division and 20% each from its hardware and software segments -- cost the company US$ 1 billion. But the impact of the labor savings won’t materialize until Q3, IBM reported.