Hardware revenue falls out from under IBM in another tough quarter

Like other legacy IT vendors, IBM continues to struggle in its efforts to sell hardware to companies around the world.

The latest proof took the form of IBM’s quarterly and annual earnings report. Investors weren’t feeling it; after IBM released the figures, the company’s stock was down more than 3 percent in after-hours trading.

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IBM’s systems and technology business unit, which includes servers and storage, ended up at $4.3 billion in the fourth quarter of 2013 — 26 percent down from the same period in 2012. Mainframe server products got walloped, declining 37 percent.

Across the board, Big Blue reported $27.7 billion in revenue the fourth quarter of last year, beating analysts’ revenue estimates but falling short of the quarterly revenue figure from a year ago by about 5 percent.

Net income came in at $6.2 billion, with $5.73 in earnings per share. Analysts were expecting $5.99.

Fortunately for IBM, there’s room to grow in ways that don’t involve getting more companies, governments, and academic institutions to buy servers and other IT equipment.

Cloud computing and software sales could hold promise for IBM in the year or two to come, considering its new Watson business unit and its recent $1.2 billion commitment on cloud infrastructure.

Cloud revenue for 2013 came in $4.4 billion. That’s a 69 percent year-over-year increase. But IBM continues to face an investigation from the U.S. Securities and Exchange Commission over cloud revenue. In the long-term, though, IBM sees cloud as a growth area.

On top of that, IBM could offload parts of its hardware portfolio later this year. Lenovo and Dell have reportedly considered buying IBM’s low-end server business. A deal with IBM would include at least the System x line of servers that work with the x86 chip instruction set. System x revenue went down 16 percent for the last quarter of 2013.

Today, ZDNet reported on a confirmation from Lenovo chief executive Yang Yuanqing that the company is in fact “in preliminary negotiations with a third party in connection with a potential acquisition.” So perhaps news of a deal could come soon.

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Meanwhile, Dell and Oracle have dealt with declines in their server revenues as of late. So IBM isn’t alone in its hardware blues.

At least IBM can point to 9 percent growth in business analytics, with $15.7 billion in revenue last year. And data analytics could be a bright spot going forward, too.

“We believe data as a natural resource will drive demand going forward and big data analytics will provide a basis for competitive differentiation,” Martin Schroeter, IBM’s chief financial officer, told analysts on a conference call following the earnings release.