IBM reports lowest quarterly revenue in 5 years as hardware sales fall

By Supantha Mukherjee and Soham Chatterjee

(Reuters) - IBM Corp reported its lowest quarterly revenue in five years as the company struggles with falling demand for its storage and server products.

Shares of the world's largest technology services company fell about 4 percent to $188.20 in after-hours trade.

Total revenue fell 4 percent to $22.5 billion in the first quarter, below analysts' average estimate of $22.91 billion.

"They have had eight revenue declines in a row. They have missed so many times, it's hard to keep track of it," said Fred Hickey, editor of The High-Tech Strategist newsletter, which is widely read by investors.

IBM reported revenue of $21.71 billion in March 2009.

Revenue from the hardware business, which includes servers and systems storage, plunged 23 percent to $2.4 billion.

The company has been restructuring its business by cutting jobs and selling its low-end server business to Chinese PC maker Lenovo Group Ltd for $2.3 billion in January.

"They used to be a leader. Now they sell one business after the next. That is not a way to grow," Hickey, who has followed IBM for 30 years, said.

The company warned that challenges in its hardware business may persist.

"As we look to the balance of 2014, we continue to expect good performance in the key growth areas, though our overall revenue growth will be impacted by the challenges in our hardware business," Chief Financial Officer Martin Schroeter said on a conference call.

Revenue in the Americas fell 4 percent, while it dropped 12 percent in Asia Pacific and declined 11 percent in emerging markets such as Brazil, Russia, India and China.

Software was the only major business to show some growth, with revenue rising 1.6 percent to $5.66 billion, but the growth rate was slower than the fourth quarter's 2.8 percent.

"They are not yet getting the kind of lift off of software that they would need to pump up overall IBM revenues into positive growth territory," Forrester analyst Andrew Bartels said.

BETTING ON CLOUD

IBM plans on spend more than $1.2 billion to expand its web-based software products, better known as cloud computing.

The company said its cloud revenue was up more than 50 percent in the quarter. The annual run rate of cloud delivered as a service doubled from last year to $2.3 billion.

Moving to the cloud allows businesses to cut costs by ditching bulky servers for network-based software and using remote data centers run by technology companies.

The global cloud services market last year grew by almost a fifth to an estimated $131 billion, according to research firm Gartner. IBM Markets Intelligence estimates the market could be as big as $200 billion by 2020.

IBM's first-quarter net profit fell to $2.38 billion, or $2.29 per share, from $3.03 billion, or $2.70 per share, a year earlier.

The quarterly results included a $870 million charge related to job cuts, the company said.

On an adjusted basis, the company earned $2.54 per share.

Analysts on average had expected earnings of $2.54 per share, according to Thomson Reuters I/B/E/S.

The stock, which gained 4.6 percent over the last three months, closed at $196.40 on the Nasdaq on Wednesday.

(Additional reporting by Marina Lopes in New York and Jim Finkle in Boston; Editing by Sriraj Kalluvila)