IBM--IBM shares fall as revenue disappoints
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 4:51 PM ET Oct 18, 2000 NewsWatch
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ARMONK, N.Y. (CBS.MW) -- IBM shares fell almost 16 percent Wednesday after the company reported third-quarter revenue that fell short of analysts' expectations by $600 million.
After the market closed Tuesday, IBM (IBM: news, msgs) said its total revenue was $21.8 billion, up from $21.1 billion. But the company's s sales growth fell short of Wall Street's $22.4 billion target.
Third-quarter revenues from the Americas totaled $9.7 billion, an increase of 1 percent. Meanwhile, revenue from Europe/Middle East/Africa dropped 3 percent to $5.6 billion. Asia/Pacific revenue grew 18 percent to $4.3 billion.
Despite reporting only 3 percent overall revenue growth due to disappointing hardware and software sales, IBM increased profit from operations 11 percent in the third quarter, matching bottom-line expectations.
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10/18/2000 4:56:54 PM ET
Earnings increased to $2 billion, or $1.08 a share, vs. $1.8 billion, or 93 cents a share in the year-ago quarter. IBM met analysts' consensus estimate, provided by First Call.
"It sounds like another excuse quarter," said Daniel Kunstler, analyst with Bear Sterns in San Francisco. "But the good news is they're not providing us with a huge downer, considering the macro environment. Thank heavens."
Hardware revenue rose 4 percent to $9.5 billion, while the company's services revenue increased 4 percent to $8.2 billion, which was lower than several analysts anticipated.
In particular, sales of the company's high-end enterprise systems, where IBM competes most heavily with Unix computer makers Sun Microsystems and Hewlett-Packard, looked weak, analysts said.
Overall enterprise systems sales declined 7 percent: Analysts were expecting a gain. And Web server sales, which are primarily Unix-based computers, rose only 15 percent. Shebly Seyrafi, analyst with A.G. Edwards & Sons, had expected Web server sales growth of 30 percent.
Mainframe computer sales slumped 24 percent, analysts said. The company's making several product transitions, including an upgraded mainframe model. IBM executives said customers delayed purchases of older systems, awaiting the newer computers, which will be available starting at year's end.
"While the rate of revenue growth continued to improve in the third quarter, it was not at the rate we had wanted," said John Joyce, IBM's chief financial officer, in a call following the earnings report. "But we demonstrated our ability to generate profit and cash."
Weak hardware sales helped affect software revenue, which dropped 3 percent to $2.9 billion, in part because of slower sales of IBM's Tivoli system management software. Also, the company didn't close software sales at the end of the quarter, executives said.
"IBM's now a first- or second-quarter story, instead of a fourth-quarter story," Seyrafi said. "The stock is already attractive, because it's discounted a lot of the bad news. But I'm lowering earnings expectations on it."
As of Tuesday evening, he said he hadn't finalized his earnings guidance. Merrill Lynch on Wednesday dropped its earnings estimates for IBM's fourth quarter, as well as for 2001.
The lower-than-expected high-end hardware sales also affected sales of operating systems. But IBM said it expects to do turn in better hardware revenue and operating systems results in the December quarter.
Sales were further constrained by supply problems in IBM's microelectronics business. The company couldn't meet demand.
One positive was IBM's services revenue, which increased 9 percent. IBM signed $13.3 billion in service contracts and completed the quarter with a contract backlog of $81 billion.
Also, IBM indicated that further cost cuts should help it going forward. Already this year, IBM executives claim it's been able to save $1.4 billion in expenses by handling more customer support questions online. The company also plans to move 35 percent of its personal computers online, up from 30 percent now.
"We are becoming more efficient and more effective," Joyce said. "Leveraging these efficiencies in cost and expense will be key to delivering earnings in 2001."
IBM shares closed down $17.56 to $95.44 in Wednesday trading. |
