IBM Earnings Fall on Spending Decline
Oct 16 5:54pm ET
By Caroline Humer(got my microscope out looking for the good news that shot IBM up 5 bucks AH--i think i need a stronger lens i still can't find it:)--max
NEW YORK (Reuters) - International Business Machines Corp. on Tuesday said its third-quarter profit fell as a global slide in technology spending led to its first quarterly earnings decline since anxiety about the Year-2000 computer bug crimped profits two years ago.
Given its steady services business, however, IBM said it believes it can meet Wall Street's earnings expectations in the current fourth quarter, Chief Financial Officer John Joyce said.
IBM shares took off in after-hours trading, rising to $104.20 from its close of $101.85 on the New York Stock Exchange, where it had lost 15 cents before Tuesday's earnings announcement. IBM shares are up about 20 percent for the year, outperforming the Standard & Poor's 500 index <.SPX> by 44 percent.
The company said revenue from services and software rose during the quarter from the previous year, but hardware sales declined by 21 percent.
Personal computer revenues, part of the hardware division, fell due to continued weakness and pricing pressures while sales of server computers were stronger.
Sales of microelectronics, including semiconductors, were also lower.
The Armonk, New York-based company reported net income of $1.6 billion, or 90 cents per share, compared with $2.0 billion, or $1.08 a share, in the year-ago quarter.
Analysts polled by research firm Thomson Financial/First Call expected IBM to earn 89 cents per share on average, with estimates ranging from 82 cents to 95 cents per share.
For the quarter, sales were $20.4 billion, down from $21.78 billion in the same period a year ago.
'BIG BLUE' HANGS IN THERE
J.P. Morgan analyst Daniel Kunstler was cautiously positive about the results.
"I actually think this is not too bad. The aggregate hardware revenues don't look terribly good -- down 21 percent -- that is actually sort of brutal. But the rest of the mix seems to be hanging in there. Particularly software looks like a good number, up 10 percent," Kunstler said.
"The mainframes hung in there, even with Sept. 11 being in the mix, so overall I don't think we've got too much to complain about," he said.
Analysts had been expecting the company to report weak earnings and during recent weeks had trimmed their estimates for it as competitors such as Sun Microsystems Inc. and EMC Corp. warned that the third quarter would be weaker than expected.
But CFO Joyce told a conference call that Wall Street expectations for IBM's fourth-quarter results were reasonable.
While he allowed that current business conditions were challenging and the Sept. 11 attacks had hurt some hardware sales, Joyce said IBM's annuity-like businesses, such as its maintenance and outsourcing technology services, had been largely unaffected and that high-end server and software sales remained strong.
"We believe the current earnings per share consensus for the fourth quarter is reasonable," Joyce said.
The Wall Street consensus for IBM's fourth quarter is for a profit of $1.34 a share, according to First Call.
Joyce also said semiconductor sales may head higher after the current quarter.
"We believe the third and fourth quarter will be the bottom," said Joyce, who forecast three months ago that the microelectronics business would pick up in the fourth quarter.
PC sales sagged in the third quarter, but Joyce said the business, which has thin profit margins, had little impact on total profit.
For the third quarter, IBM said its gross profit margin rose to 36.2 percent in the third quarter from 35.4 percent a year ago. The company said it spent $1.8 billion on share repurchases during the quarter. |
