Coverage: Two different tech companies
IBM and Apple reported earnings on Monday, but the stories were vastly different for the two technology companies. IBM is backing off from its 2015 earnings forecast, while Apple is riding high on the new iPhone 6. Interestingly, the two have formed an alliance to sell iPads and phones to corporate customers.
Bloomberg’s Alex Barinka had these details about IBM’s earnings:
International Business Machines Corp. (IBM) plunged to a three-year low after abandoning an earnings forecast for 2015, as the company struggles to transform fast enough to handle the shift to cloud computing.
IBM said it will provide an update on its projections in January, ditching a five-year plan to boost profit. The shares tumbled 7.1 percent, dragging down the Dow Jones Industrial Average. Warren Buffett, IBM’s biggest shareholder, had $900 million of his investment wiped out.
While Chief Executive Officer Ginni Rometty had been banking on a strong second half of the year, IBM instead faced weaker-than-expected software sales and lower productivity in services in the third quarter. With technology customers moving from owning hardware to storing data in the cloud, IBM is now cutting more jobs, reducing its forecast for free cash flow and handing over an unprofitable chip unit to Globalfoundries Inc.
“Obviously we were disappointed in this quarter,” Rometty said on a conference call today with analysts, adding that the company is facing “unprecedented change” in the industry. “We have more to do and we need to do it faster.”
The Wall Street Journal story by Daisuke Wakabayashi reported that Apple’s new line of products was fueling its turn-around and climbing profit:
Driven by booming sales of its new bigger-screen iPhones, Apple on Monday said its quarterly profit rose 13%, and it predicted record holiday sales in the current three-month period.
Meanwhile, Samsung’s approach of offering smartphones at all sizes and prices in every market is struggling amid a wave of Chinese manufacturers with low-cost offerings.
Apple’s resurgence is driven by the iPhone 6 and iPhone 6 Plus, which the company introduced in September. The iPhone 6 with a 4.7-inch screen and the iPhone 6 Plus with a 5.5-inch display are in short supply. With its latest phones, Apple is catching up with Samsung and others that have posted strong sales of larger phones. (Graphic: Compare the iPhone 6 with other phones.)
In an interview, Apple Chief Executive Tim Cook said the reception for the new iPhones has been better than expected with combined sales of iPhone 6 and 6 Plus exceeding same-period sales of last year’s iPhone 5S—Apple’s high-end model at the time—in every market where the phones were available. The larger iPhone 6 Plus sells for $100 more than the 5S did last year.
Christina Farr and Edwin Chan wrote for Reuters iPad sales were down, but that the alliance with IBM could help boost sales:
But sales of the iPad, which helped launch the mainstream tablet market in 2010, slid for the third straight quarter. A gradual decline in tablet demand worldwide has worried investors already concerned with Apple’s slowing growth, who are awaiting a new device that can energize its expansion.
Sales of Apple’s tablet slid more than 7 percent from the previous quarter to 12.3 million units, and were down 13 percent from the year-ago period.
Some investors hope that Apple’s recently forged alliance with International Business Machines Corp (IBM.N), intended to drive tablet and phone sales to corporate customers, may help reverse a decline in sales of the tablet device.
Chief Financial Officer Luca Maestri said in an interview that the pair of tech giants had already signed on 50 “foundational” or initial clients, and the two intend to introduce their first jointly designed software apps next month.
Steve Lohr wrote for The New York Times that IBM CEO Rometty was working to make the case for her strategy with analysts:
After IBM reported surprisingly weak quarterly profits and sales Monday morning, Virginia M. Rometty did something most unusual for an IBM chief executive. She joined the conference call with analysts, and forcefully made the case for investing heavily in new fields that promise growth in the future, despite a near-term financial setback.
“We are reinventing and we are managing this company for the long term,” Ms. Rometty told the Wall Street analysts. She acknowledged that third-quarter results were “disappointing,” and she underlined the need to pick up the corporate pace in the midst of “unprecedented change” in the technology industry.
But Ms. Rometty insisted that IBM’s “very bold moves” since she became chief executive nearly two years ago — multibillion-dollar spending programs for data analysis software and skills, cloud computing and Watson artificial intelligence technology — were the right ones. “The strategy is correct,” she said. “Now it’s our speed of execution that needs to improve.”
Whether it’s speed or strategy that needs to change, IBM has some work to do. In contrast, Apple seems to have found the key to attracting customers. How long investors give IBM to turn things around remains to be seen, but those who bet on Apple last year, are happy with the results.