Big Blue released its Q3 numbers last night and it makes for grim reading. IBM revenues slipped below analysts' expectation as poor economic conditions around the world hit profits in American global corporations.

Hardware a Problem for IBM In Q3

Not that there is any real concern about the future of IBM. Mark Loughbridge, the company's CF0, stands by his predictions of a good year for IBM when it rounds up things at the end of the fourth quarter. That said, there is trouble in the kitchen. Hardware sales seem to be the principal problem this time around, even if figures in other IBM business segments were far from overwhelming.

Overall, the company reported a third-quarter profit of US$ 3.82 billion, down from US$ 3.84 billion a year earlier, with revenue sliding 5.4 percent to US$ 24.75 billion.

But if this were an "IT Christmas Carol," we might be citing the Ghost of Leo Apothekar-Past, as the drop of 13 percent in hardware sales that IBM experienced over the quarter is more than just a market hiccup.

Apothekar, you may remember, had tried to pull HP out of hardware last year, predicting that hardware was in for a rough ride. The move that cost him his CEO stripes at HP.

But it seems now that he was only reacting to the reality of a market that is steadily shrinking, as governments and large enterprises in Europe extend their IT replacement cycles and hold onto the hardware they have, in order to cut costs.

Global Problems

Indeed much of the revenue shortfall that we see in this set of figures was blamed on the economic woes in Europe, which translated not only into falling sales, but also fewer dollars for every sale, thanks to a weaker euro.

There were also signs of slowdown in the company’s technology-consulting services, but there were other problems as well. The problems included:

  • Geography: It wasn’t just Europe that performed badly -- the US and Australia didn’t do too well, either. Revenue in US was US$ 10.4 billion, down 4 percent from a year earlier. Europe, the Middle East and Africa earned revenues of US$ 7.2 billion, down 9 percent on last year. Asia-Pacific managed to rise by 1 percent to US$ 6.5 billion, showing that India and China, despite everything, are still strong performers.
  • Software: This is generally considered one of the indicators of company health and this time around it didn’t do too badly, although it has performed better in the past. Revenues here were US$ 5.8 billion, with revenues from its middleware products like Tivoli, Lotus and WebSphere down 1 percent to US$ 3.6 million.
  • Systems and Technology: This includes hardware and totaled US$ 3.9 billion, down 13 percent on this time last year. Revenue for systems sales and services not including retail systems were down 8 percent on the year. System Storage revenue decreased by 10 percent from a year earlier. IBM says it was hit by the sale of its point-of-sale technology to Toshiba, was well as the introduction of new mainframe equipment that hit earlier lines.

IBM’s Cloud, Analytics, Social Business

However, IBM has invested in technologies that are quickly becoming the wave of the future, and expects to ride out difficult times using this.

By 2015, it has said on previous occasions, it is expecting to add US$ 20 billion to its revenue through cloud computing, analytics, its smarter planet initiative and investments in emerging markets.

As a taster, Loughbridge has this to say of analytics:

Information management was up 3 percent … Performance was driven by strong growth in our business analytics offerings, led by Algorithmics which together with our deep analytics expertise helps our clients manage risk and better enable faster decision-making. Just last week Software announced new members of [the] PureSystems family, the IBM PureData Systems. These expert integrated systems are optimized to deliver high-performance data services for transactional and analytics applications.”

Tivoli was also up 9 percent, while revenues from storage were up 14 percent. Despite a fall-off in business for Lotus, and Notes in particular, IBM says its performance was strong across all its social business offerings.

Investment in cloud technologies has started paying off, with revenues at the end of this quarter already surpassing the revenues for the whole of 2011, Loughbridge said.

Cloud revenue so far this year has already exceeded our full year revenue for 2011. All of this comes together in our Smarter Planet Solutions. Through the third quarter, we had revenue growth of more than 20 percent in the Smarter Planet portfolio, with traction and our smarter commerce and industry solutions. When you look at our offerings in our Business Analytics, Cloud and Smarter Planet, about half of the revenue was software.”

This is the first set of figures that we will look at over the coming weeks. On Thursday, Microsoft is due to announce results and a number of companies will do the same in the days that follow.

If IBM is a bell-weather for the information management industry, then things are looking sickly across the industry at the moment. However, while this set of results saw IBM miss expectations for the fifth time in a row, it has still turned a profit for the 39th consecutive quarter. The real litmus test will be the end of Q4, when the performance over the entire year will become clearer. In the meantime, let’s see how Microsoft does on Thursday.