NEW YORK – Wall Street insiders are reportedly concerned over IBM’s (NYSE:IBM) huge miss of nearly $ 1 billion in third quarter revenue. Following misses in seven consecutive quarters, there are concerns that the tech services giant is being too optimistic about their forecasts, especially for 2015.
News of the third quarter revenue miss started a sell-off in after-hours trading on Wednesday. According to the company, most of the revenue shortfall was due to a 40 percent drop in hardware sales in China as the country gets ready to implement a new economic plan in November. In a statement, the company said ‘there simply has been a substantial impact of China’s economic reform plan, which will be announced in November.’
According to company CFO Mark Loughridge, ‘once that economic plan is announced and adds clarity to the markets, we will see a recovery in demand from state-owned enterprises in the government sector.’
However, analysts are not sharing the same view of the company’s prospects, and many believe that it will take until late 2015, at the earliest, for IBM to rebound. While Loughridge spent much of his time on the earnings call explaining how he believes IBM can meet its forecasts for the current fourth quarter and for the full year 2015. Toni Sacconaghi of Bernstein Research asked if there were some significant secular issues within IBM, and should investors now look at IBM as a zero-growth company in terms of revenue with less than double-digit earnings growth. In particular, Sacconaghi noted that ‘we see a pattern of financial performance that is way out of whack with your historical model.’ This appeared to be a reference to the company’s streak of missing consensus revenue estimates over the previous seven quarters.
In reality, IBM has not had solid revenue growth in years. Instead, the company was an earnings machine, with double-digit earnings growth and share buybacks to investors. Nevertheless, an earning miss of this magnitude could be a symptom of deeper issues. The results do not help Ginny Rometty, who took over as CEO in January of 2012, who is going to be under serious pressure to meet the company’s current forecasts.
Shares of IBM are down almost 6 percent in after-hours trading.