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IBM Third-Quarter Earnings are out

by Volker Weber

Revenues from the WebSphere family of software products increased 2 percent year over year. Information Management software revenues decreased 1 percent. Revenues from Tivoli software increased 5 percent. Revenues from Lotus software decreased 10 percent, and Rational software decreased 16 percent.

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Comments

Love all the "adjusted for currency" numbers. IBM makes a ton of money as, effectively, a bank, doing currency arbitraging.

Bob Balaban, 2012-10-17

I think Bob is confusing two concepts. IBM (and any company that sells products in multiple currencies) has to consolidate their results into a single currency. But the exchange rates change from quarter to quarter and year to year. Sometimes dramatically. So the various accounting rule makers (not IBM) came up with ways to present this information to investors. You want to be able to determine if IBM really sold more or less widgets, or if the numbers only changed because the exchange rate changed.

Quite separate from all of that, IBM and other companies of all sizes may hedge (not "arbitrage") their exposure to wild swings in exchange rates using financial instruments. The goal is to smooth out the bumps, not make money. By definition, they may make money in some periods and lose money in others, but if they are doing this right they will break even (minus transaction costs) in the long run. Similar to a farmer locking in the price for his corn in the grain futures market.

Arbitrage is when a commodity or security is priced higher in one market than another, presenting an opportunity for the alert investor to buy cheap and sell dear, until both markets are back in balance.

Carl Fink, 2012-10-17

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