IBM Profit Up In Quarter, Beating Forecasts
By Eric Auchard
NEW YORK (Reuters) - International Business Machines Corp. (IBM -
news) said Tuesday its earnings rose about 7 percent in the third
quarter, beating forecasts on Wall Street, as strength in North
America more than offset weakness in Asia.
The world's largest computer maker said net earnings rose to $1.5
billion in the quarter from $1.4 billion a year earlier. Earnings
per share rose to $1.56 from $1.35, reflecting the effect of a
buyback program that reduced its average shares outstanding.
The latest results beat average forecasts of $1.53 a share,
according to First Call, which tracks analysts' estimates.
Armonk, N.Y.-based IBM said the weakness in Asia and Latin
America was ''significant'' but added it saw ongoing strength in
some key businesses. After the report, IBM officials cautioned
analysts not to raise their earnings projections.
''While IBM is entering the fourth quarter with some real
momentum, we are facing a number of significant short-term
issues,'' Chairman Louis Gerstner said in a statement. He cited
weakness in Asia and Latin America, the uncertain global economic
outlook and price weakness in IBM's computer chip business.
Sales rose to $20.1 billion from $18.6 billion, paced by strong
services revenues, which jumped 23 percent to $5.8 billion, IBM
said. Hardware revenues rose 4 percent, software revenues grew 5
percent and personal computer revenues were flat.
By region, Asia-Pacific revenues fell 16 percent to $3.2 billion
in the quarter. Sales in North America rose 15 percent to $10
billion while revenues in the Europe, the Middle East and Africa
grew 16 percent to $6.1 billion.
Gerstner said the company saw improvements in ''nearly all parts
of our product line.''
Expenses rose 4 percent in the quarter, largely to support its
electronic commerce strategy, IBM said.
In a conference call with Wall Street analysts following the
earnings report, Chief Financial Officer Doug Maine warned not to
expect additional growth in technology spending in the rest of
1998 and through 1999.
''What we are saying to do is don't raise your estimates,'' Maine
instructed analysts, referring to the earnings projections that
brokers calculate, which in turn tend to set the pace for
valuation of a company's stock.
Maine said world economic issues and falling semiconductor prices
had created an uncertain economic environment. ''Given the
uncertainties, we just don't think it would be prudent to take...
estimates up,'' he said.
Maine declined to comment specifically on earnings forecasts,
noting only that Wall Street was already looking for 15 percent
to 16 percent growth in earnings through 1999.
The fourth-quarter consensus among brokerage analysts calls for
IBM to report earnings of $2.42 per share, up from $2.11 in the
final quarter of 1997, according to research firm First Call
Corp. The 1999 full-year earnings forecast stood at $7.49,
compared with $6.49 for 1998 as a whole.
However, Maine said IBM is better positioned than many others in
the computer industry to weather a slowdown in technology
spending due to its diversified international base of revenues
from hardware, software and services.
Furthermore, Maine noted that more than 50 percent of company
revenues derive from multi-year contracts that vary little year
to year. These ''annuity-like'' revenues are paid for IBM
patents, financing, many of its services contracts and some
software, especially that used to run mainframe computers.
''That means no matter what happens in the world we are going to
get paid,'' he said, referring to the majority of IBM revenues.
The percentage of revenues from these consistent sources has
nearly doubled this decade, due largely to the growth of IBM's
computer services business, which in the third quarter accounted
for 29 percent of the total $20 billion in revenues. |
