International Business Machines Corporation Stumbles As the New Focus on Software and Services Takes Shape

IBM shares fell more than 4% in after-hours trading, as first-quarter results didn't quite measure up to Street targets.

Apr 16, 2014 at 9:22PM

Image source: IBM.

Shares of IBM (NYSE:IBM) are trading 4.2% lower in after-hours action, following the release of results for the first quarter of 2014.

IBM saw sales fall 4% year-over-year to $22.5 billion. Non-GAAP earnings dropped 15% to $2.54 per share. The quarter was a mixed bag, as the earnings figure was in line with analyst projections, but sales fell short by $400 million.

Management held its non-GAAP earnings guidance for the 2014 fiscal year firm at $18 per share.

Sales increased by 4% year over year in Europe but decreased in all other geographic segments. Developing markets were particularly troubled, with 11% lower sales in the BRIC bloc and 12% damage to revenues in the Asia-Pacific region.

Shifting to product divisions, software and services reported modest growth while hardware sales plummeted 23% lower from the year-ago period. System Z mainframe sales were 40% lower.

The sharp division between hardware and software/services results points to IBM's ongoing strategy shift under CEO Ginny Rometty, who has held the title since the beginning of 2013.

"In the first quarter, we continued to take actions to transform parts of the business and to shift aggressively to our strategic growth areas including cloud, big data analytics, social, mobile and security," Rometty said in a prepared statement.

In a separate earnings-related document, she insisted that the payoff is coming: "This quarter, as expected, we took a substantial charge to align our resources and skills to the demand profile we see. This charge impacts our results this quarter, but it will pay back within the year."

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of IBM. Try any of our Foolish newsletter services free for 30 days.

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