IBM Slumps: What Wall Street's Saying

Tickers in this article: IBM

Updated from 8:40 a.m. to include comments from BMO analyst.

NEW YORK (TheStreet) –– IBM shares slumped as the company's service backlog continued to slip, despite reporting better-than-expected second-quarter results.

Armonk, N.Y.-based IBM said its services backlog fell 1% to $136 billion, when adjusting for the customer care outsourcing business which it sold off earlier this year. IBM depends on services for more than half of its quarterly revenue, as it transitions into higher growth businesses, such as cloud computing, big data and analytics, security and mobile.

Global services segment revenue decreased 1% to $13.9 billion, with the global technology services segment amounting to much of that at $9.4 billion. IBM's global business services segment revenue fell 2% to $4.5 billion.

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On the earnings conference call, Chief Financial Officer Martin Schroeter addressed this, saying that signings growth had a difficult comparison last year, but that it should improve. "So we had a difficult compare," Schroeter said on the call, noting that contract signings growth in the first and second quarters of last year was north of 30%. "We knew that in the first half. But we do see getting the signings content growing again in the third."

IBM shares slumped 0.45% in early Friday trading to $191.63.

The worries over IBM's service backlog comes despite the company beating analysts' earnings estimates. Investors, however, have expressed concerns that the company is no longer focusing on revenue and earnings but rather financial engineering.

IBM reported non-GAAP earnings of $4.32 a share on revenue of $24.36 billion. Analysts polled by Thomson Reuters had expected earnings of $4.29 a share on revenue of $24.13 billion.

TheStreet's Keris Lahiff breaks down IBM's Q2 results:


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"In the second quarter, we made further progress on our transformation. We performed well in our strategic imperatives around cloud, big data and analytics, security and mobile," said Ginni Rometty, IBM chairman, president and CEO. "We will continue to extend and leverage our unique strengths to address the emerging trends in enterprise IT and transform our business, positioning ourselves for growth over the long term."

Despite the concerns over services, IBM continues to make headway in its key initiatives, despite having been behind the curve in cloud, allowing competitors such as Amazon to surpass it. IBM noted cloud revenue was up more than 50% year to date, and business analytics revenue rose more than 7% year to date.

IBM continues to say that it expects to deliver at least $18 a share in non-GAAP earnings, though Wall Street remains cautious on that.

Most analysts were slightly negative on the results following the call. Here's what a few of them had to say.