Throwing a BRIC through expectations
IBM posted revenues that were up 3% year over year while expanding the bottom line by 18% year over year. The bottom- line gains once again come thanks to reducing share count and other cost savings. One interesting note: The company's tax rate was 3.2 percentage points below last year's. That comes the same day Apple
The shifting mix to international sales is pushing down tax rates, but can also lead to tax consequences when bringing cash back to the U.S. In IBM's case, BRIC (Brazil, Russia, India, China) countries brought 29% year-over-year growth.
The biggest concern was services signings. The company's total signings were down 7% year over year to $11 billion. IBM was quick to note it signed a massive deal with ABN AMRO shortly after the quarter ended, so the drop-off might just be part of the lumpiness of large signings. It's also important to note that total backlog is still flat, so I wouldn't put too much weight behind this earnings pothole.
More acquisitions, fewer buybacks?
Looking ahead, an interesting area to watch will be whether IBM lets off the gas on share buybacks. The company still has $2.3 billion left on its buyback authorization, but could focus its spending more on acquisitions, given the consolidation among big data center players. That would hurt earnings per share in the short run, but given that IBM's road map still calls for about $50 billion in repurchases through 2015, it shouldn't affect the company's long-term outlook.
So what might IBM be looking at in coming quarters? Remember that unlike competitors Hewlett-Packard
One interesting area that keeps getting mentioned is networking. Cisco
All in all, it's another solid quarter from IBM. The market wasn't impressed, sending the shares down more than 3% today. I recently recommended buying IBM as part of our "11 O'Clock Stock" series and think this quarter continues to validate the buy thesis. IBM is executing well across its business, and has focused on key growth areas like business analytics and being a big-technology first mover in the massive opportunity presented by digitizing the energy grid. Whether or not Mr. Market believes it, IBM's baseline jumper is still the best in the game.