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International Business Machines Corp. (IBM) Is Slowly Becoming A Smaller Company: Cory Johnson

International Business Machines Corp. (NYSE:IBM) posted its fourth quarter earnings report on Tuesday. The company also reported its guidance for 2015 along with the earnings report. International Business Machines Corp. (NYSE:IBM) managed to beat the estimates on profits for the fourth quarter, but guided on the lower side for 2015, which did not pushed the stock up in spite of a good quarter report. Bloomberg’s Scarlet Fu and Cory Johnson discuss International Business Machines Corp. (NYSE:IBM)’s earnings report and future of the company in 2015 on Bloomberg TV.

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Fu reported that International Business Machines Corp. (NYSE:IBM) reported a fourth quarter revenue of $24.11 billion, which was lower than the street consensus of $24.8 billion. She added that International Business Machines Corp. (NYSE:IBM) also reported a fourth quarter EPS of $5.81, which was higher than the expected $5.41. She said that the higher estimate among Analysts which Bloomberg surveyed for EPS was $5.61.

She mentioned that there is couple of items that did not factor into the estimates, but she said that in spite of strong bottom line, sales numbers are down, which might be due to strong dollar weakening the revenue numbers. Fu pointed out that International Business Machines Corp. (NYSE:IBM) get over 58% of sales from outside United States, due to which the strong dollar not really helping International Business Machines Corp. (NYSE:IBM) with revenues. International Business Machines Corp. (NYSE:IBM)’s fourth quarter revenue was down by 12% year-over-year.

Fu added that International Business Machines Corp. (NYSE:IBM)’s average gross margin for fourth quarter was reported as 53%, which was more than the estimate of 52.7%. So she restated that on the profitability side International Business Machines Corp. (NYSE:IBM) has done very well, but missed on revenues.

Johnson said that International Business Machines Corp. (NYSE:IBM) is becoming a smaller company every year. He mentioned that International Business Machines Corp. (NYSE:IBM) did not intent to become a smaller company, because they spent close to $10 billion in acquisitions. He added that revenues of International Business Machines Corp. (NYSE:IBM) are down by billions of dollars in the last decade, which clearly indicates that the company is becoming smaller. He thinks that their strategy to beat the bottom line profits is not helping them with revenues.

“[…] Continuing to beat on the bottom line by using sort of different kinds of accounting, buying back shares and in particular lowering the denominator of the number of shares out there. The profits before taxes, which was sort of the EBIDTA number, those were 7.1 billion dollars, just flat year-over-year. So Sales falling, profits flat,” Johnson said.

Even though International Business Machines Corp. (NYSE:IBM) is having good gross margins, Johnson feels that due to the above mentioned reasons they are not making enough profits and revenues.

Disclosure: None

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