IBM’s U.S. enterprise business hits a slowdown

While IBM experienced strong first-quarter 2007 sales of its technologies in Asia-Pacific and Europe, the company encountered a slowdown in its U.S. enterprise business, according to Mark Loughridge, the company’s CFO.

IBM issued financial results for the quarter ended March 31, 2007 on Tuesday.

When combined, IBM’s non-Americas revenue accounted for 55 percent of the company’s total revenue for the quarter as compared to the Americas’ 41.3 percent and the vendor’s OEM business at 3.7 percent. Although IBM’s Asia-Pacific revenue grew 10 percent and its revenue from Europe, the Middle East and Africa rose 13 percent, its Americas revenue increased by only 1 percent. OEM revenue fell by 5 percent.

While Asia-Pacific had its best quarter performance in five years in the first quarter of fiscal 2007, IBM’s European revenue also significantly rebounded, especially in Germany, Loughridge said Tuesday during a conference call with financial analysts to discuss the results.

When pressed by financial analysts to explain the reason for the softness in IBM’s Americas operation, Loughridge didn’t provide a satisfactory answer leading to a string of analysts trying to rephrase the question in hopes of receiving a clearer response.

However, the IBM CFO did stress that the slowdown in sales occurred in the company’s enterprise customer base, not its SMB community. Within the enterprise space, he narrowed the slowdown to the month of March, saying that the business had “pretty good” performance in both January and February. When drawn on whether the softness occurred in particular vertical markets, Loughridge said that revenue from the industrial, financial services, and communications sectors had “lagged.” At the same time, revenue from the distribution sector was very strong, he added.

Loughridge characterized the slowdown as more of a blip than an indicator of some significant problems. He also looked to IBM’s non-Americas business to continue to perform strongly, offsetting any softness in its Americas operations. In particular, he pointed to emerging markets, including China and India. “Over the next four years, we expect the [emerging] markets to grow at more than two times the world [growth] rate,” Loughridge said.

Looking ahead to the second quarter of fiscal 2007, Loughridge said he expected to see improvements in IBM’s Americas business leading to “modest growth.” He added, “I think we have a pretty good pipeline as we go into the second quarter. We certainly did see some deals roll out of the [first] quarter.”