--> IBM is trading ~3% lower in pre market at $182.30.
IBM: Color on qtr
- Stifel notes 4Q EPS of $6.13 beat consensus ($5.99) on lower revenue ($27.7bn down 3% cc, consensus $28.0bn) and tax rate (11%). The lower tax rate contributed $0.62 to EPS, although IBM has always viewed the tax rate as an operational lever and telegraphed the lower rate. Core issues were continued weakness in the Growth Markets (GMU's down 6% versus -5% in September), China remained particularly weak (down 23% y/y), hardware was down 25% as expected due to the anniversary of the mainframe product cycle and known product transitions. Software grew in its target range (+4%); Services was consistent with 3Q, which was modestly below their expectations as cyclical and perhaps some customer specific issues continue to impact GTS growth.
- ISI notes the Dec-13 again highlighted challenges IBM is facing to revive its business (e.g., Software only up ~3% y/y, Services down y/y and systems down 26% y/y). In its view, the core of IBM's old playbook has been based primarily on: 1) large share buybacks, 2) highly disciplined expense management, 3) portfolio rationalization with a focus on services/software, and 4) tuck-in m&a. While this strategy historically produced consistent double-digit EPS growth, ISI believes a new strategy is required as large portions of IBM's highly profitable software/services business is under threat from SaaS and cloud migration. Maintaining relevance in large accounts will require bigger/bolder m&a in ISI's view, even if dilutive to EPS in the early years.
- RBC notes IBM was able to beat Street EPS expectations during the quarter largely due to a lower tax rate and share buyback benefits. RBC believes EPS guidance for FY14 is achievable and positions the firm well toward achieving its $20 EPS target by FY15.