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IBM's Earnings: 3 Important Takeaways

John Maxfield
October 17, 2012

Yesterday, two of the technology heavyweights on the Dow Jones Industrial Average (INDEX: ^DJI  ) faced off by releasing their third quarter earnings: Intel (Nasdaq: INTC  ) and IBM (NYSE: IBM  ) .

Although neither company dazzled analysts (read about Intel's performance) and IBM's weak performance has weighed heavily on the index, the Dow is nevertheless in the midst of an earnings-season rally. It closed higher yesterday by triple digits. And while it began today in the red, it's seemingly in the midst of an ascent, down by only five points, or 0.04%, at the time of writing.

Examining IBM's earnings
As you can see below, while IBM's earnings per share grew on a year-over-year basis, it nevertheless came up short of consensus estimates on both the top and bottom lines. Revenue for the quarter was $24.75 billion, compared with an estimate of $25.36 billion, and EPS came in at $3.33 against an expected $3.61.



Consensus Estimate

Last Year

Revenue (billions)




Earnings per share




Source: The Wall Street Journal.

Given these results, it should be no surprise that shares in the services giant are trading sharply lower today, currently down more than 5%.

In no particular order, here are three important takeaways from IBM's third-quarter earnings release.

1. Emerging-market growth
Over the last few years, IBM has invested heavily in the so-called "growth markets" around the world. While its overall results were underwhelming, as evidenced by the top- and bottom-line misses, this strategy appears to be paying off, though not as quickly as the company had likely hoped.

Adjusted for the currency headwinds discussed below, revenue from growth markets improved by 4%, and if you include only the four BRIC countries -- Brazil, Russia, India, and China -- that figures ratchets up to 11%. According to IBM's chief financial officer, "This quarter, 35 of the growth market countries grew at a double-digit rate, reflecting ongoing broad-based strength." By comparison, revenue from the Americas region fell on a comparable basis by 3%.

2. Currency headwinds
As we've seen with other companies -- namely, Coca-Cola (NYSE: KO