Can the Falling Dollar Provide Respite to IBM?
Geographic contributions and dollar dependence
Foreign currency fluctuations impacted International Business Machines’ (IBM) fiscal 2Q17 revenues by 200 bps (basis points), which was somewhat balanced out by a 40-bp benefit from buyouts.
IBM generated more than 52% of its revenues outside the United States (QQQ) in 2Q17. As a result, the falling US dollar comes as welcome news for IBM as well as for the majority of the technology industry, as these companies derive most of their revenues from regions outside the US. The top lines of tech players including Microsoft (MSFT), Oracle (ORCL), and Symantec (SYMC) are all vulnerable to US dollar movements in this way.
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Last week (ended July 21), the US dollar (UUP) fell to its lowest level in 13 months. In 2017 to date, it has fallen more than 8%—a substantial fall, considering its peak of $103.80 represented its highest level in 14 years.
The Fed’s two-day meeting concluded on July 26th, and as expected, there was no rate hike announcement for July. So the Fed’s meeting had a minimal impact on the US dollar.
US and EMEA weighed heavily on IBM’s fiscal 2Q17 results
The Americas and EMEA (Europe, the Middle East, and Africa) failed to report any growth for IBM in fiscal 2Q17. Within the Americas, while the US reported a fall of 5%, Canada and Latin America managed to report growth.
Weakness in Germany (EWG) and the UK (EWU) impacted IBM’s performance in EMEA, which reported a 5% decline in revenues. On a sequential basis, revenues in Asia-Pacific improved on the back of 1% growth in constant currency terms in Japan. Notably, Japan is IBM’s second-largest country in the Asia-Pacific region.