IBM is looking for more buys, the Wall Street Journal reported. The unsourced 19 July report, part of the paper's Heard on the Street column looking at how venture backed start ups have little choice buy to look for strategic suitors, stated that IBM has recently made a series of buys of software companies and is looking for more acquisitions.
IBM did not impress Wall Street analysts earlier this week with its earnings release due to:
1. Disappointing Services signings: IBM signed contracts totalling $12.3bn (-12%) in Q2, 13% below consensus.
2. Slowdown in Software at 2% growth (+6% excluding IBM PLM) despite easy comps (Q2 09: -7%) and Oracle's strong performance in infrastructure software suggesting a better environment
3. Sluggish demand in Europe with sales -6% (-1%cc) to $7.4bn while Americas were up 2% to $10.2bn and Asia Pacific +9% to $5.4bn
4. Reshuffle of senior management that we think may set the stage for succession of current CEO Sam Palmisano (59 year-old, CEO since 2002).
However, IBM has successfully transformed the revenue mix: services and software now accounts for 80% of revenues and 90% of profitability. Their increasing focus on software acqusitions should help fuel profitable growth provided they go for substantially larger deals competing with Oracle.
IBM shares were down 4.3% in aftermarket trading. Investors likely to remain cautious on recovery pace in my view.