Last night IBM announced Q1 results (for the three months to end March), which showed revenue down 3% (at constant currency) to $23.4bn. Net income (operating non-GAAP) was up 3%. It was clearly a disappointing three months for the firm, with the results missing Wall Street forecasts. To blame was a shortfall in sales (worth $400m) of very profitable software and System z mainframe deals, which failed to close before the quarter ended. Of course, what doesn’t close in Q1 could well rollover into Q2. While that might be good for the Q2 numbers, it is certainly a far from ideal scenario, and IBM is going to have to ensure that if there are weaknesses in sales execution that these are addressed quickly.
The services business saw revenue dip 1%, but pre-tax income increase 10%. There was a continuation of many of the themes from FY12 (see IBM grows profits on flat revenue). GTS declined 2% to $9.6bn – impacted by the on going decline in revenue from existing accounts and the restructuring of low margin outsourcing contracts. GBS revenue was flat at $4.5bn. However, behind the subdued top line number, there were ‘hotspots’ of “double-digit” growth from Business Analytics, Smarter Planet and Cloud solutions. To give you an idea of the scale of the services business, IBM closed 22 deals of more than $100m in the quarter.
Elsewhere in Big Blue, software revenue was up 1% but Systems and Technology revenue was down 16%.
IBM has said that it will bring forward workforce restructuring to the current quarter and may look to divest certain businesses. In light of this, media outlets are speculating that IBM could be seeking to divest its low-end server business.