NEW YORK, July 19 (Reuters) – IBM (NYSE:IBM) disappointed investors by reporting a decline in new technology services contracts in the second quarter, while a weaker euro hit revenue more than expected, sending its shares down more than 4 percent.
While firm growth in the company’s higher-margin software unit and sales in emerging markets bolstered profit, Monday’s results were not as good as investors had wanted to see from the world’s biggest technology services company.
Some analysts said International Business Machines Corp’s results may weigh on technology shares on Tuesday, dampening expectations that corporate IT spending was on the rebound following sterling numbers from Intel Corp (NASDAQ:INTC).
"Revenues were not as strong as people were expecting. There were some currency hits …. But even with that, it might have been a little bit weaker than people were expecting," said Mark Demos, portfolio manager at Fifth Third Asset Management, an IBM shareholder.
"We’re coming out of the recession, and services signings is one of the indicators that people would like to see at least grow from year over year."
IBM said its second-quarter revenue rose 2 percent to $23.7 billion. Analysts on average had expected $24.2 billion, according to Thomson Reuters I/B/E/S.
Big Blue blamed currency rates for reducing revenue by about $500 million in the quarter.
"If you really look at the difference to analysts expectations, the difference is all currency," said Chief Financial Officer Mark Loughridge.
But analysts said were also concerned about the low signings of services deals, a key indicator of future revenue. Signed services contracts fell 12 percent to $12.3 billion, while total outsourcing services signings decreased 19 percent to $6.5 billion, it said.
Brian Marshall, analyst at Gleacher & Co, as well as Fifth Third’s Demos had expected services contracts of around $14 billion.
"They were clearly affected from forex headwinds, but at the end of the day, IBM continues to suffer from the law of large numbers," Marshall said. "The company is struggling to find good growth opportunities."
Loughridge explained that some contracts had slid into the new quarter, and that revenue should grow in the third quarter regardless of currency fluctuations.