International Business Machines’ earnings dropped this quarter, typically an indicator of technology spending by business and government, the Wall Street Journal said. On the same day, Intel cut its 2013 revenue forecast and said it would spend less to expand its business. Looks like the sector may be in for some trouble.
The Wall Street Journal had this story on I.B.M.:
International Business Machines Corp.’s second-quarter earnings declined 17% over a year earlier on weaker hardware and services revenue and higher workforce reduction expenses.
Shares rose 1.7% to $197.22 in late trading as earnings beat analysts’ expectations and the Armonk, N.Y., company said it expects operating earnings of at least $16.90 a share, excluding a $1 billion charge for work force reductions, compared with at least $16.70 a share previously.
IBM’s results are considered an indicator of the health of technology spending among government and corporate customers and its improved outlook could be good news for rivals. The company is known for aggressively shedding less profitable businesses and cutting costs while bulking up its catalog of more unique offerings-—such as consulting services, analytics software and data-storage systems—where it can earn wider margins.
However, a number of analysts have raised concerns that IBM, which makes much of its money selling big-ticket software, hardware and computer systems, may be on the wrong side of a major technology shift to online computing, software and data storage, known as cloud computing.
Intel is having similar trouble on the revenue front cutting cut forecasts for the year, according to Reuters:
Intel Corp (INTC.O) cut its full-year revenue forecast and said it is scaling back capital spending as it adjusts to a painful contraction of personal computer sales and economic weakness in China, one of its biggest markets.
The forecast and cut in capital spending were announced on Wednesday in the company’s quarterly earnings report, the first under new Chief Executive Brian Krzanich. The soft-spoken manufacturing guru took over as CEO in May and faces falling PC sales and a hyper-competitive mobile market.
The company’s chief financial officer, Stacy Smith, said in an interview on CNBC that the chipmaker had seen softer sales in China than it had anticipated.
Intel, the world’s biggest chipmaker, dominates the PC industry but has been slow to adapt its chips to be suitable for smartphones and tablets, effectively ceding that market to Qualcomm Inc (QCOM.O) and other rivals.
The New York Times headline on I.B.M. did highlight that results were better than expected, often at the expense of workers:
In recent years, I.B.M. has taken annual charges of $500 million to $1 billion for what it calls “work force rebalancing.” The company sheds workers in higher-cost nations and in businesses that are being trimmed back, and adds employees elsewhere, especially in India.
I.B.M. says the process reflects both financial discipline and globalization as it hires and invests in faster-growing markets. The net effect has been an expansion of its global work force to more than 430,000.
What is different this time, analysts say, is that the work force charge is being taken in a single quarter rather than spread across an entire year. The company’s operating earnings, which exclude the charge for work force cuts, rose 3 percent, to $4.3 billion, or $3.91 a share. The result was well above the average analyst estimate of $3.77 a share, according to Thomson Reuters.
CNNMoney took the angle that Intel is suffering as more people are turning to alternative devices:
Smartphones and tablets aren’t killing Intel just yet, but the chipmaking giant is getting very badly bruised.
Amid an ongoing PC sales swoon, Intel on Wednesday reported its fourth straight quarter of sales declines and its third quarter in a row in which profit fell year-over-year. The company also gave a somewhat more pessimistic outlook for the rest of the year than it had previously forecast.
Shares of Intel (INTC, Fortune 500) pulled back 3% in after-hours trading.
Intel’s business has struggled lately as PC sales remain very weak. Worldwide, shipments of PCs fell by 11% last quarter, according to Gartner. Tech consultancy iSuppli found that laptops turned in their worst year-over-year sales performance in 11 years.
Accordingly, sales of Intel’s PC chips fell by 7.5%. They make up nearly two-thirds of the company’s revenue.
The link between Intel and I.B.M. doesn’t need to be stated, but they are two Fortune 100 companies reporting declining revenue and struggling with their core businesses. As consumer look to alternatives to PC’s and businesses cut back on spending, increasing profits for both will be difficult.
As reporters write about earnings, it would be nice to see the link to consumer and business spending, especially in areas like technology where it’s apparent.
