IBM Q3 FY2013 Takeaway

IBM missed consensus revenue expectations for the seventh straight quarter, and its 2015 goal of $20 EPS remains a significant pressure point as 2015 nears. IBM was able to take advantage of a better tax rate, workforce rebalancing, reduced spending, and efficiency improvements to grow net margins. But skepticism is growing as IBM continues to rely on these levers and its aggressive share repurchase program to drive margin and EPS improvements while revenue remains relatively flat to negative. IBM will need to achieve roughly 12% annual growth over the next 2 fiscal years to meet its 2015 EPS goal.

IBM continues to face headwinds and uncertainty in a variety of areas on a quarterly basis while not realizing offsetting growth in other areas of its business. While IBM has done an excellent job continuing to improve EPS each quarter, top-line revenue growth is a critical factor and is being scrutinized by Wall Street. Therefore, we expect continued pressure on all IBM sales teams to drive revenue, with a particular focus in services, as this provides an entry point to selling software, long-term services, and hardware. Organizations can capitalize on a weaker IBM from a negotiation perspective if they can present a compelling long-term IT roadmap, develop a sound negotiation strategy and approach that preserves and maximizes leverage, and remain patient and disciplined in negotiation execution.

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