7/20...IBM Posts Sales Decline But Signals Turnaround
By Nicole Volpe
NEW YORK (Reuters) - International Business Machines Corp. (NYSE:IBM - news) reported a 1 percent revenue decline, redeemed by earnings that beat estimates and comments by the world's No. 1 computer maker that it was on the brink of climbing out of a year-long sales rut.
``We feel good about the momentum as we come out of the second quarter,'' said Chief Financial Officer John Joyce. ``We are well positioned for double-digit revenue growth in the second half.''
IBM shares rose in after-hours trade to 109, up from the close on the New York Stock Exchange of 103-1/2, after climbing slightly ahead of the results. The stock has a 52-week trading range of 89-3/4 to 138-3/4.
``It appears to be a bit of a relief rally,'' said Sanford C. Bernstein analyst Toni Sacconaghi, who said IBM had arrived at a turnaround after nearly a year of slack sales. ``There were worries this was a woulda, coulda, shoulda story -- always one more quarter, one more quarter. But this is the turning point.''
The Armonk, N.Y.-based company said net income reached $1.9 billion, or $1.06 a share, compared with earnings of $1.7 billion, or 91 cents, excluding special items, in the second quarter of 1999. Revenue fell 1 percent to $21.7 billion from $21.9 billion in the same period a year earlier.
In the 1999 second quarter, IBM's earnings, including the benefit of 37 cents a diluted share from the sale of its Global Network unit and other actions, reached $1.28 a share.
Profit for the latest quarter topped the consensus estimate of $1.00, according to analysts surveyed by First Call/Thomson Financial, a research firm that tracks such forecasts.
IBM, which has shown sluggish sales for much of the past year, had posted a 5 percent decline in revenues for the first quarter. That shortfall contrasted with the performances of rivals such as Sun Microsystems Inc. (NasdaqNM:SUNW - news) and Dell Computer Corp., (NasdaqNM:DELL - news) whose revenues have surged by 35 percent or more. Sun and Dell have not yet reported their second-quarter results.
Joyce said on Wednesday he was still comfortable with full-year 2000 estimates for the world's largest computer maker, and the view held by analysts the company can post double-digit revenue growth by year's end.
``Our general view of the second remains unchanged,'' he said in a conference call after IBM announced its quarterly financial results. ``We are comfortable with the current consensus for earnings per share for the full year.''
When asked about the third-quarter revenue growth, he said: ''The estimates range from a low of mid to single-digit growth to a high of very low double-digit growth, with an average in the high single digits, and we are comfortable with that in the third quarter.''
He said fourth-quarter revenue growth would accelerate to the double-digit percentage rates that IBM has been promising.
``We are encouraged as we look ahead to the second half. As for the fourth quarter, can only say it should be even stronger than the third,'' he said.
IBM's revenue decline in the second quarter reflected problems in a variety of areas, but the company was working to overcome them, Joyce said.
``Our revenue performance was constrained by several factors, most obviously currency, but also PCs (personal computers), HDDs (hard disk drives) and some parts of our server business and a series of actions we took last year to improve our profitability,'' he said.
Weaker foreign currencies depress the value of sales outside the United States when converted into dollars. That effect reduced sales growth by 1 percentage point in the second quarter.
Investors and analysts have been looking for IBM to emerge from the troubles in its hard disk drive and personal computer businesses, as well as a malaise in services and mainframes revenue after the Year-2000 date changeover.
IBM Chairman and Chief Executive Louis Gerstner said in a statement IBM's hard disk drive business, which held back first-quarter results, continued to hurt sales, and that while the PC business improved, he was not yet satisfied with the results.
One executive during the conference call said the PC business could turn profitable by the end of the year.
Analysts pointed out that the second half of the year is traditionally stronger than the first half.
``IBM did well in the first half when they had the wind against them, now let's see what happens in the second half when the wind is at their backs,'' said Bear Stearns analyst Andrew Neff.
IBM's Global Services business, with new signings totaling $20 billion in the second quarter, was a bright spot. Revenues from the group grew 2 percent. IBM's software revenues grew 2 percent, on strength of sales of products used in online business. |
