SYSTEMS

Make that six quarters in a row that IBM has reported a decline in quarterly sales.

IBM’s shares are slumping in late trading after the company reported a mixed batch of quarterly results. The stock is down 2.5% this year through Wednesday’s close.

IBM has reported its third-quarter revenues fell 4.1% to $23.72 billion compared to $24.74 billion this time last year. The revenues were down due to the company's underperforming hardware division, which is taking a hit with the growing popularity of cluster vendors.

Revenues from its Systems and Technology which includes its supercomputer segment totaled $3.2 billion for the quarter, down 17 percent from the third-quarter of 2012.

“In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue. Where we had identified high growth opportunities and pursued them aggressively --- cloud, mobile, business analytics, and security --- we continued to show strong growth. This underscores our strategy to continuously transform the company to high value,” said Ginni Rometty, IBM chairman, president and chief executive officer.

“We are taking action to improve execution in our growth markets unit and in the elements of our hardware businesses that are under performing. Given these actions, our strategic initiatives and the strength of our model, we are maintaining our view for the full year and remain confident in our ability to achieve at least $20 operating EPS in 2015.”

Geographic Regions

The Americas’ third-quarter revenues were $10.3 billion, a decrease of 1 percent (flat, adjusting for currency) from the 2012 period. Revenues from Europe/Middle East/Africa were up 1 percent to $7.3 billion (down 2 percent, adjusting for currency). Asia-Pacific revenues decreased 15 percent (down 4 percent, adjusting for currency) to $5.5 billion. OEM revenues were $534 million, down 1 percent (flat, adjusting for currency) compared with the 2012 third-quarter.

Growth Markets

Revenues from the company’s growth markets were down 9 percent (down 5 percent, adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and China — were down 15 percent (down 12 percent, adjusting for currency).

Services

Global Technology Services segment revenues decreased 4 percent (down 1 percent, adjusting for currency) to $9.5 billion. Global Business Services segment revenues were flat (up 5 percent, adjusting for currency) at $4.6 billion.

Pre-tax income from Global Technology Services increased 12 percent and pre-tax margin increased to 19.4 percent. Global Business Services pre-tax income increased 28 percent and pre-tax margin increased to 20.0 percent.

The estimated services backlog at September 30 was $141 billion, up 2 percent year over year at actual rates (up 6 percent, adjusting for currency).

Software

Revenues from the Software segment were $5.8 billion, up 1 percent (up 2 percent, adjusting for currency) compared with the third-quarter of 2012. Software pre-tax income increased 2 percent and pre-tax margin increased to 36.8 percent.

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Social Workforce Solutions and Rational products, were $3.7 billion, up 3 percent (up 4 percent, adjusting for currency) versus the third-quarter of 2012. Operating systems revenues of $576 million were down 4 percent (down 2 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products were flat year over year. Information Management software revenues increased 2 percent. Revenues from Tivoli software increased 2 percent. Revenues from Social Workforce Solutions increased 14 percent, and Rational software increased 12 percent.

Hardware

Revenues from the Systems and Technology segment totaled $3.2 billion for the quarter, down 17 percent (down 16 percent, adjusting for currency) from the third-quarter of 2012. Systems and Technology pre-tax income decreased $291 million to a loss of $167 million.

Total systems revenues decreased 19 percent (down 18 percent, adjusting for currency). Revenues from Power Systems were down 38 percent compared with the 2012 period. Revenues from System x were down 18 percent. Revenues from System z mainframe server products increased 6 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 56 percent. Revenues from System Storage decreased 11 percent. Revenues from Microelectronics OEM increased 1 percent.

Financing

Global Financing segment revenues increased 6 percent (up 9 percent, adjusting for currency) in the third-quarter at $502 million. Pre-tax income for the segment increased 4 percent to $494 million.

Gross Profit

The company’s total gross profit margin was 48.0 percent in the 2013 third-quarter compared with 47.4 percent in the 2012 third-quarter period. Total operating (non-GAAP) gross profit margin was 49.1 percent in the 2013 third-quarter compared with 48.1 percent in the 2012 third-quarter period, with increases in Global Technology Services, Global Business Services and Global Financing.

Expense

Total expense and other income decreased 1 percent to $6.6 billion compared with the prior year period. S,G&A expense of $5.3 billion decreased 11 percent year over year, including the prior year third-quarter workforce rebalancing charge of $408 million. R,D&E expense of $1.5 billion decreased 4 percent compared with the year-ago period. Intellectual property and custom development income decreased to $191 million compared with $303 million a year ago. Other (income) and expense was income of $62 million compared with prior-year income of $606 million, which included a $447 million gain from the divestiture of Retail Store Solutions. Interest expense decreased to $97 million compared with $124 million in the prior year.

Total operating (non-GAAP) expense and other income was flat at $6.4 billion compared with the prior-year period. Operating (non-GAAP) S,G&A expense decreased 10 percent to $5.1 billion compared with the prior-year period. Operating (non-GAAP) R,D&E expense of $1.5 billion was down 6 percent compared with the year-ago period.

Pre-Tax Income

Pre-tax income decreased 5 percent to $4.8 billion and pre-tax margin of 20.3 percent was down 0.2 points compared with the prior-year period. Operating (non-GAAP) pre-tax income decreased 4 percent to $5.3 billion and pre-tax margin was flat compared to the year-ago period.