"Speaking of the quarter, I am guessing that earnings are solid enough to meet or beat by a penny or two. It is my impression that the services group did well. Revenues could be a challenge but in any event it will be close enough. Taxes a potential issue since it is time to balance the ledger. It is the end of the year so no more lowering the tax rate to make the numbers. But I think this is factored in too. All in all a good quarter with no major surprises. Remember, a lot of work went into the 4th quarter to make up for a lost September.
Where does the stock go? Don't know that answer. Could be some more upside here but this will require a powerful CC. Need a lot of positive statements."
Well the numbers are out plus I listened to the CC. Basically, the thread was on target here. Earnings beat by a penny, revenues a bit light, services had a strong finish with a lot of business producing 1Q02 revenue and the CC was very realistic and set the correct expectations stating that the '02 EPS consensus is reasonable but that the IT environment will probably be similar to what we saw in '01 for at least the 1H02 which is probably not positive enough since the stock is selling off now. From my view there were absolutely no negative surprises and some very encouraging words for some of the problem areas of the business such as PCs and the OEM space.
Since you can listen for yourself by going to the IBM home page I will summarize some of what I heard.
--Numbers affected by:
----Some currency issues but they also report in constant currency so this is smoke.
----PCs and OEM from microelectronics poor performer. Lost 500 million.
---------HDDs had yield problems but shipping now and should be a better contributor in 1H02.
---------PC space will rely on some outsourcing to save $.
----Z series strong (mainframes) with first YoY revenue increase since 1989 (not mentioned but pricing firmed with the demise of Amdahl and Hitachi mainframe product lines).
----Regatta (high end UNIX) sold out. (Low and Mid Range had challenges but Regatta technology being ported down to these models for '02).
----Software strong.
--Financials:
----Cash flow strong. Cost control good and added focus for more '02 cost cutting.
----Half of the '02 EPS estimate is in the bank due to annuity revenues, strong services backlog, other backlogs, etc.
----Strong balance sheet.
--Competitiveness:
----Integrated Business Solutions. Only IBM has this breadth of offerings and this is what customers want.
----Gained share in key sectors. For example, Shark (disk sector) gained 6% share in a market that declined 20%.
----Strong financials: cash flow, balance sheet, etc.
----The above model will sustain IBM in a continuing weak economy and position it for growth when economy improves.
--'02:
----Sell customers total solution, one stop shopping.
----Continue strong financials.
----Succeed even under current conditions.
----Half of '02 earnings consensus under contract already.
----Take another billion out of costs and redirect some to high return investment.
----Gain share in software, services, storage, and servers.
----'02 will be good when you have IBM strengths.
--Q and A:
----The usual folks (Helmig, Jones, Conigliara, and some unknowns) asking the same stuff but in more detail. Key here was the focus on getting a better feel or a warmer description of IBM's ability to have a strong 1Q02 and full year. I think Joyce was as forthcoming as is prudent and was optimistic to the point that I will go out on the limb and say that the current consensus for 1Q is in the bank. Barring any disasters and modest 2H recovery the year is in the bank too. Not to say there won't be trading range noise and problems to deal with but as of now, the current expectations have been brought down to makeable levels. That may not be good enough for new all time highs any time soon but I don't see draconian downdrafts either.
All IMHO of course, read the reports and listen to the CC for yourself as part our personal due-diligence requirements. Reported what I heard as best as I could. |
