But higher margins helped International Business Machines Corp's first-quarter profit beat Wall Street estimates, and the company affirmed its full-year earnings outlook -- helping to limit the fall in IBM shares to 1.6 percent after hours.
These were decent results in light of the challenging economy. Certainly the top line is being impacted by the weak economy, said Andy Miedler, analyst at Edward Jones.
IBM is managing the business well, focusing on expense control, and its movement to software and services is clearly evident in the increasing profitability. Net-net we think this is a decent quarter.
IBM said on Monday first-quarter revenue fell to $21.71 billion from $24.50 billion a year earlier. That compared with analysts' average forecast of $22.56 billion, according to Reuters Estimates.
Net profit for the quarter dropped 1 percent to $2.30 billion, from $2.32 billion in the year-ago quarter.
Profit per share, however, rose to $1.70 from $1.64, as the number of shares outstanding decreased. Analysts on average were expecting $1.67 per share, according to Reuters Estimates.
Short-term bookings look a little weaker than everybody had hoped. That probably means that the next quarter will be mixed. The long-term guide looks solid, said Peter Misek, analyst at Canaccord Adams.
IBM has so far fared better than many other technology companies, thanks to its growing focus on software and services, such as outsourcing and technology support.
The company has moved to a more profitable revenue mix over the past decade, dumping increasingly commoditized hardware for software and services. Gross profit margin rose to 43.4 percent in the quarter from 41.5 percent a year earlier.
Despite the fall in revenue, IBM reiterated its outlook for a full-year profit of at least $9.20 per share. Chief Financial Officer Mark Loughridge said on a conference call that he was more confident in that outlook now than he was last quarter.
Chief Executive Samuel Palmisano was upbeat about the following year as well.
We remain ahead of pace for our 2010 roadmap of $10 to $11 per share, he said in a statement.
Wall Street has been hoping that the first quarter would mark the bottom of the downturn for the tech sector, eyeing an improvement in demand in the second half of this year.
Chipmaker Texas Instruments
It appears that the industry and TI in particular are putting in a bottom for the March quarter, said Ashok Kumar, analyst at Collins Stewart.
SHRUGS OFF ORACLE-SUN DEAL
IBM shares were quoted at around $98.80 after closing down 0.83 percent at $100.43 on the New York Stock Exchange.
IBM competes with the likes of Hewlett-Packard Co
IBM's talks to buy Sun broke down earlier this month. Many analysts say Sun could have helped IBM bolster its position in the server market and expand its software portfolio.
Loughridge, when asked about Oracle's deal, said he saw no change.
We've been competing with Sun, we know Oracle inside out, he said. They now have the same address and same mail box, but we're talking about the same team that we've been competing against for some time and winning on the field.
Many analysts agreed a combined Oracle and Sun was unlikely to threaten IBM any time soon, but some said that there was a chance IBM could regret the missed opportunity to acquire Sun's assets like Java and Solaris operating system.
Overall the whole acquisition is negative for IBM. Obviously not being able to have ownership of the proprietary Java programing language, that's definitely a big negative, said Carlos Guillen, an analyst at research firm Wall Street Strategies.
Sources had told Reuters that IBM offered up to $9.40 per share, which Sun turned down. Oracle offered $9.50 a share. (Additional reporting by Jim Finkle, Bill Rigby and Gabriel Madway; Editing by Richard Chang, Tiffany Wu and Steve Orlofsky)