IBM misses revenue targets again after stumbling in China

Visitors walk past the IBM booth at the 9th China International Software Product & Information Service Expo in Nanjing, Jiangsu province September 6, 2013.[Photo/Reuters]

IBM missed revenue expectations for the fourth straight quarter as it grappled with weakening demand for servers and storage in emerging markets such as China.

Shares in the world's largest technology services company fell 3.5 percent to $181.68 in after-hours trade.

Chief Executive Officer Ginni Rometty and her team will forego their annual incentive payments for 2013 as IBM failed to increase revenue. Particularly in China, the State-owned corporations that IBM relies on for a large chunk of revenue are putting the brakes on IT spending.

China accounts for about 5 percent of IBM's business, about 40 percent of which is hardware sales. The country's economy, the world's second largest, is tough to read, executives said. A new government headed by Xi Jinping is spearheading significant structural reforms that are affecting State-owned companies.

"China is going through a very significant economic set of reforms," IBM Chief Financial Officer Martin Schroeder told analysts. "While they have slowed, we don't think that this opportunity has gone away."

"We'll be on a trajectory to growth as we exit 2014 and we're comfortable that we get back to mid-single digits across the growth market regions by the end of the year."

IBM, for years a tech-infrastructure provider of choice for large corporations and government agencies, is expanding into higher-margin software and cloud computing services as its hardware business sputters.

Revenue in that business, which includes server and storage products, fell for the ninth straight quarter as more companies switched to the cloud from traditional infrastructure.

Sources said IBM and China's Lenovo have revived discussions about a sale of Big Blue's low-end server unit, though executives did not mention that on Tuesday.

Some analysts said a backlash against US government spying in emerging economies contributed to plummeting demand at IBM. Asia-Pacific revenue fell 16 percent, while that from Brazil, Russia, India and China fell 14 percent in the quarter.