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Bolt from the Blue

Ben Rossi | Aug. 14, 2013
In an exclusive interview with CNME, Amr Refaat, GM, IBM Middle East, says that, whilst emerging markets were partly attributed for the dip, the Gulf has nothing to worry about.

When the first quarter saw IBM miss earnings expectations for the first time in eight years, questions were raised not just on Big Blue, but the state of the IT industry as a whole. In an exclusive interview with CNME, Amr Refaat, GM, IBM Middle East, says that, whilst emerging markets were partly attributed for the dip, the Gulf has nothing to worry about. 

Results of a disappointing quarter for a technology company are not exactly cause for much surprise these days.

However, IBM is a slightly different case. Steady quarterly earnings calls are as consistent as the blue in its logo. Until April this year, that is, when the company missed quarterly earnings expectations for the first time in eight years.

Following 10 quarters of double-digit growth, IBM only grew by single digits. Before you knew it, CFO Mark Loughridge was talking of "workforce rebalancing actions". In other words, job cuts.

IBM has not said how many jobs it will cut, but Loughridge did say that most would take place in the second quarter.

"Given our first quarter performance," he said following the earnings call in April, "we now expect to take the bulk of our workforce rebalancing actions for the year in the second quarter, as opposed to last year when it was distributed across the quarters.

"Now, remember last year we had about $800 million in workforce rebalancing charges spread across the year. This year, we expect the workforce rebalancing charges to be closer to $1 billion and concentrated in the second quarter."

It is believed that $1 billion figure will amount to cuts of around 6,000 to 8,000 globally. Since June 12, IBM has already cut over 3,300 jobs in North America, according to IBM labour union Alliance@IBM. It is thought that much of the rest would fall outside of North America.

Goldman Sachs attributed the first quarter results to stagnated growth for tech companies in emerging markets, which IBM, among others, increasingly relies on. Emerging markets accounted for nearly a quarter of IBM's revenue and drove around 80 percent of its revenue growth from 2010 to 2012.

After the firm downgraded IBM stock to neutral from buy, and slashed its profit and sales estimates, Goldman analysts said that they believe "pressures on IBM's growth markets and higher-margin revenue streams may intensify in the near term, weakening some of the key sources of IBM's earnings and cash flow resiliency in coming quarters."

They added that Goldman still thinks "IBM's long-term secular prospects remain sound," but the company "appears to be going through a challenging period" following bleaker IT spending and pressure on growth markets like Brazil, Russia, India and China.

Whilst IBM has denied to comment on whether any redundancies have or will fall in the Middle East, it is unlikely when considering there are little worries of stagnation in this region right now. Indeed, IBM continues to enjoy large growth in the Middle East.

 

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