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IBM Q2 Earnings Beat Estimates, but Sales Miss on Currency Effects

The strong dollar hits Big Blue again.

Shares of computing and services giant IBM fell by more than 4 percent in after-hours trading as the company’s revenue declined by 13 percent, which was more than analysts had expected, a miss the company blamed in part on international exchange rates and a strong U.S. dollar.

IBM posted earnings of $3.84 per share on sales of $20.8 billion. The profit was better than the $3.78 that analysts had expected. Sales were weaker than the $21 billion analysts surveyed by Thomson Reuters had called for. IBM attributed the sales weakness to the effect of currency exchange rates. After backing out the currency effects and impact from the sale of its System X server business, Big Blue said sales would have fallen only 1 percent.

When U.S.-based companies are paid in international currencies like the euro and Japanese yen, revenue can suffer when those currencies are converted back to U.S. dollars. Companies that have struggled with the currency effects in recent months include Hewlett-Packard and software giant Oracle.

For the full year, IBM said it expects profits in the range of $15.75 to $16.50 per share, more or less in line with the $15.88 that analysts expect.

IBM’s earnings on a GAAP basis including one-time charges were $3.58 a share, down 15 percent year on year.

Sales in the computing hardware segment fell 32 percent to $2.1 billion but would have risen by 5 percent after adjusting for currency effects and the impact of the sale of its System X server unit. Revenue from z Systems mainframe machines rose 9 percent year on year and would have been up 15 percent after adjusting for currency effects. Sales of its Power Systems hardware fell 1 percent, but would have risen by 5 percent after backing out currency effects. Data storage revenue fell 10 percent, or 4 percent after currency effects.

Revenue in IBM’s biggest business segment, Global Technology Services, fell 10 percent, or a 1 percent rise after accounting for currencies and divestitures, to $8 billion. Software revenue also fell 10 percent to $5.8 billion, or a 3 percent fall after currency effects.

In its “strategic imperatives,” a group of newer lines of business including cloud computing, mobile software, analytics software and security initiatives which CEO Ginni Rometty has emphasized as part of a strategic turnaround, revenue rose 20 percent year to date. Revenue from cloud computing and applications rose 50 percent. The company said the portion of its cloud computing business delivered on an as-a-service basis is on a run rate to deliver $4.5 billion this year. This is the portion of its cloud business that is usually compared to Amazon Web Services, which is expected to hit $7 billion in revenue this year.

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