IBM’s third quarter earnings are flat compared to a year ago, but what’s telling about the company’s report are the areas where revenue slipped: Most were in hardware. Sales of physical systems were down 13% year over year, with mainframes down 20% and production at IBM’s chip foundry–where it makes microprocessors for itself and its customers–down 25%. Worldwide, sales of semiconductors are projected to contract 0.1% in 2012, due to the global economic slowdown creating weak sales of PCs and other devices that use the high-end silicon IBM makes.
IBM $IBM’s third quarter earnings are flat compared to a year ago, but what’s telling about the company’s report are the areas where revenue slipped: Most were in hardware. Sales of physical systems were down 13% year over year, with mainframes down 20% and production at IBM’s chip foundry–where it makes microprocessors for itself and its customers–down 25%. Worldwide, sales of semiconductors are projected to contract 0.1% in 2012, due to the global economic slowdown creating weak sales of PCs and other devices that use the high-end silicon IBM makes.
What has buffered IBM against the declining market for high performance chips, which has also buffeted competitors like Intel $INTC? Most immediately, diversification into . Today, and 60% of its profits come from software license fees and services contracts, both of which it sells on a subscription basis. It’ll need to increase that percentage—or find other sources of revenue—to counteract chip woes going forward.
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