If you were to look at the business pages of any major newspaper in the past couple of days, you’d swear IT was in meltdown. The reactions to the Q1 figures for both IBM and Intel have pushed stock markets down. However, while the stockholders might not be getting what they want -- no tears shed here -- the IT areas that we know, love and like have all performed despite difficult times in Europe.
The reactions to the figures have been prompted by the fact that both Big Blue and Intel, generally considered the bellwethers of the IT industry, have recorded sales growth figures that were the lowest in two years.
IBM posted revenues of US$ 24.7 billion while Intel’s sales hit US$ 12.9. The figures represent an increase of 0.3% and 0.5% respectively.
OK, not exactly what shareholders are looking for, but an increase nevertheless in a European climate that has seen some of the .major economies enter recession again. A breakdown of IBM’s figures show:
- Revenues from the software segment were US$ 5.6 billion, an increase of 5%
- Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were US$ 3.5 billion, an increase of 7%
- Revenues from the WebSphere family of software products increased 16% year over year. Information Management software revenues increased 5%. Revenues from Tivoli software increased 5%.
However, revenues from hardware segment totaled US$ 3.7 billion for the quarter, down 7%
So where lies the problem? In all their principal categories, both companies have done well in the US, but orders from Europe have been poor and dragged performance down across the board.
For IBM again, the Americas’ first-quarter revenues were US$ 10.5 billion, an increase of 1%. However, revenues from Europe/Middle East/Africa were US$ 7.6 billion, down 2%. On the bright side, Asia-Pacific revenues increased 4% to US$ 6.1 billion.
That in itself should be cause for optimism. The International Monetary Fund (IMF), never known for its giddy optimism when it comes to future predictions, has predicted worldwide economic growth of 3.5% over the coming year generally, with individual European countries expected to do well.
The result is that Intel is already anticipating a pickup in sales over the current quarter, while IBM has said that it is focusing on expanding share value.
It’s just about certain, then, that this means more cost cutting at Big Blue, which in corporate-speak probably indicates that it's going to cut is payroll again, as well as questions as to how aggressively it will continue to pursue its current acquisitions strategy.
IBM in 2012
It would be a pity, though, to see all that come to a halt. The acquisition train was exciting and led to some interesting buys in the analytics and business intelligence space that saw IBM's market share growing here and closing the gap with SAS. And in many areas that IBM invested in, the news was good:
- Smarter Planet up 25%,
- Analytics up 14%
- Cloud computing up 100%
While it is easy to manipulate the figures in these areas by including gains in anything that touches on these areas to give them a rose-glass view, in the area of analytics, at least, IBM is steadily building its market share -- something that can only result in better figures.
For IBM to stop pushing in the business intelligence market now because shareholders are not happy with the figures from a single quarter would not be too smart.
Up against it in this space are SAP, Oracle, Microsoft and SAS, and any ground lost by IBM will be gobbled up like a steak dinner by the others.
So it all boils down to the new CEO Ginni Rommety, who is still in her first year at the helm, and how much attention she will pay to whining in the business pages of newspapers.
For one disappointing quarter -- note we said disappointing and not bad -- probably not a lot especially if it is only Europe that is dragging.
However, it has publicly committed to delivering earnings per share of US$ 20 by 2015 -- US$ 15 guidance for this year -- which does not allow for many more quarters like this one, so remedial action is likely to be swift and harsh if there are signs that the year is going to continue like the last quarter. Intel is counting on better sales for this quarter. Watch this space.