Wednesday July 18 8:30 PM ET ===IBM Sees Weakness Ahead
By Nicole Volpe
NEW YORK (Reuters) - International Business Machines Corp.
(NYSE:IBM - news) reported slightly higher second-quarter net income
on Wednesday, but the world's largest computer maker cautioned it would
be hurt in the second half by a slowdown in its chipmaking business,
investment writedowns and the strong dollar.
IBM, which is one of the few big tech names still showing profit growth,
warned that sales at its microelectronics unit would fall off dramatically in
the coming months. That will make it tougher to offset the drag that the
strong dollar and investment writedowns have been putting on profits.
Shares fell about 4 percent to $100 on the news in after-hours trading.
``The microelectronics business will hurt us in the second half,'' said Chief
Financial Officer John Joyce in a conference call with Wall Street analysts.
``We still expect to grow revenues for the full year at or close to our model,
which is high-single digits at constant currency.''
Chief Financial Officer John Joyce said the combination of currency effects
and equity writedowns could knock down profits by as much 19 cents, or
about 8 percent, of analyst's estimated second half earnings per share.
The Armonk, New York-based company reported second quarter net
income of $2.0 billion, or $1.15 per share -- meeting the consensus of
analyst expectations -- compared with $1.9 billion, or $1.06 a share, in the
year-ago period.
Analysts polled by Thomson Financial/First Call expected IBM to earn
$1.15 per share on average, with estimates ranging from $1.08 to $1.22.
IBM's stock dropped to $100 in after-hours activity, after earlier closing at
$104.28, down $4.25 or nearly 4 percent, on the New York Stock Exchange
(news - web sites).
Bear Stearns analyst Andrew Neff noted that while IBM did not explicitly
lower its guidance for profits, executives did not make the usual comments
that they were comfortable with analysts' estimates.
``They clearly didn't endorse the outlook as they did in the past two
quarters,'' he said.
In fact, executives spelled out that the strong dollar -- which weakens
sales made outside the United States -- would hurt revenue growth by
about five percentage points in the third quarter and by 3 or 4 percentage
points in the fourth quarter.
``They were emphatically stating that there are risks for the third and fourth
quarter,'' said Friedman Billings Ramsey analyst Ulric Weil. ``I'd call it an
alert to the fact that there are some risks that are hard to decipher at the
moment.''
IBM NOT IMMUNE, GERSTNER SAYS
Chairman and Chief Executive Louis Gerstner said slow spots in the second
quarter included personal computers, hard disk drives, and microelectronics,
and that those would continue to hurt Big Blue in the coming months.
``We also were not immune from some of the problems that affected many
of our competitors in the second quarter,'' said Gerstner. ``We saw ongoing
weakness in PCs and hard disk drives and we continued to be hurt by the
negative effects of currency translations.''
``We expect that these factors will continue to work against us in the second
half of the year,'' he added. ``Additionally, we are now seeing signs of
slowing in our microelectronics business.''
For the second quarter, sales were $21.6 billion, flat with the same period a
year ago.
``A lot of that seemed to be currency related, and that doesn't bother me
that much,'' said Miner Crary, managing director of Seaward Management
Corp., with $1.5 billion under management.
``That seems to be a shorter term issue. The bottom line seemed to be fine.
These days you've got to expect there will be some weakness in numbers. It
takes larger and larger disappointments to shock us,'' Crary said.
IBM SELLS SERVICES THAN COMPUTERS
IBM's global services sales increased 7 percent, to $8.7 billion in the
quarter, surpassing sales of hardware for the first time, IBM said.
``On the year-to-date basis, global services has just overtaken hardware,''
said Joyce. ``IBM is truly a services led company.''
The company said it signed $16 billion in services contracts and finished the
quarter with a services contract backlog of about $95 billion. Joyce said that
IBM should be able to show mid-teens percentage revenue growth rates in
services.
Hardware sales fell 5 percent, to $8.7 billion. Mainframe computer sales and
sales of data storage products were cited by IBM as going strong.
``We should still continue to see good growth in our storage products,'' he
said. ``We have basically doubled our sales force in storage and that should
gain and continue to hold its growth rate going into the back half of the
year.''
Software sales fell 5 percent to $3 billion.
IBM has outperformed the American Stock Exchange hardware index
(^HWI - news) by about 45 percent this year. The hardware index has
underperformed the S&P 500 by 10 percent in the same period.
=================================
IBM (IBM) 104.28 -4.25: -- Update -- Not giving any specific guidance, but
management did say this... Indicated that it expects full-year impact from
non-operating items is likely to be $0.38 per share... in the past, IBM has typically
been able to cover the impact of such items, but given the size of the
non-operating items this year and the weakness in the microelectronics business,
it is probably only going to be able to cover $0.15 of the $0.38 per share
non-operating item impact if microelectronics business doesn't rebound...
nonetheless, believes it can finish the year at, or close, to its model that calls for
high single-digit revenue growth... call just concluded... IBM -1.12
IBM (IBM) 104.28 -4.25: -- Update -- In Q&A portion, says it needs to work off
about $250 mln in inventory in microelectronics business so that it is positioned for
growth in Q4... expects microelectronics business to be a point of weakness in Q3
where business slips 10-20% sequentially... says Q3 will be toughest qtr for
microelectronics business and that there should be slight uptick in Q4, but it is not
counting on a dramatic uptick in microelectronics in 2H01... IBM -1.78
IBM (IBM) 104.28 -4.25: -- Update -- Says its ability to cover non-operating
items (i.e. currency impact and equity writedowns) in 2H01 will be "problematic" if
its microelectronics customers don't start growing their business in Q3; believes
rest of its businesses will continue to show strong momentum in 2H01, driven by
company's $95 bln backlog.... no specific sales and earnings guidance was
provided... IBM -2.14
IBM (IBM) 104.28 -4.25: -- Update -- In Q2, disk storage revenue was up 35%
at constant currency and Shark revenue was up more than 50%... still waiting on
sales and earnings guidance for Q3; in press release, IBM had this to say: "We
saw ongoing weakness in PCs and hard disk drives and we continued to be hurt
by the negative effects of currency translations. We expect that these factors will
continue to work against us in the second half of this year. Additionally, we are
now seeing signs of slowing in our Microelectronics business as our OEM
customers reduce purchases"... IBM -2.08
IBM (IBM) 104.28 -4.25: -- Update -- In Q2, added $16 bln in new signings in
global services business, bringing backlog to $95 bln... Had 10 deals signed over
$100 mln and 3 deals in excess of $1.0 bln... in global services segment, services
revenue was up 15% yr/yr and maintenance revenue was up 3%... IBM -2.08
IBM (IBM) 104.28 -4.25: -- Update -- On call, said it has had to absorb
currency impact of $0.11 per share in 1H01; anticipates that total currency impact
for year could be as high as $0.25 per share if current dollar strength persists... no
other guidance provided yet... IBM -1.74 |
