Beware - the "Currency Effect" is back!

You may have read that IBM has pre-announced that its Q4 results will be considerably ahead of expectations – sending IBM’s stock up 5% last night. All IBM has so far said is that revenues rose by 10% to £28.9b – about $1b ahead of market expectations. However, half of this gain is due to currency fluctuations. Or put another way, growth would only have been 5% and revenues over $1b lower had the dollar not weakened. Strangely similar to the amount they supposedly beat expectations!

Americans, as we all know, believe that there is only one world currency – the dollar. All market sizing and growth rates are computed in dollars. So you can now expect most analysts to infer that the global IT services market is heading back to double digit growth. This same thing happened a few years back when the dollar weakened. Everyone got fooled then too.

So PLEASE take currency fluctuations into account when looking at or interpreting US results in this upcoming reporting season.

Note – I wrote this piece last night but notice that it is taken up in Lex in Tuesday's FT.

PS – I note that France has recently overtaken the UK in the world economic league tables for similar reasons!