IBM posts sharp drop in quarterly profits
In NEW YORK item headlined "UPDATE 3-IBM posts sharp drop
in quarterly profits", in third-to-last paragraph please read
"IBM's hardware business continued to decline, with revenue off
16 percent to $6.67 billion" ... instead of ... "IBM's hardware
business continued to decline, with revenue off 16 percent to
$1.67 billion" (corrects figure).
A corrected version follows:
(adds byline, moves dateline to NEW YORK from ARMONK, adds
detail from call)
By Caroline Humer
NEW YORK, July 17 (Reuters) - International Business
Machines Corp. <IBM.N> on Wednesday said it eked out a
second-quarter profit of just a few pennies a share as the
world's largest computer maker took a $1.4 billion charge to
exit money-losing businesses and cut jobs.
But even without the big charge, earnings at IBM, which
sells everything from computer software to microchips to
computer services, fell sharply as corporations concerned about
their own bottom lines cut back on technology spending.
The stock initially rose in after-hours trade, and then
traded near flat, as investors were relieved that the earnings
appeared to be in line with expectations and contained none of
the bombshells that have rocked the technology sector.
But the Armonk, New York-based company's lauded services
business, which has become its biggest revenue line, declined
for the third quarter in a row as companies both pulled back on
existing deals and failed to sign new ones.
"It's almost the kind of situation that as Global Services
goes, so goes IBM, and that's kind of how they've restructured
the company. That is the long-term driver of the stock," said
Marty Shagrin, an analyst at Victory Capital who found no major
surprises in the quarterly report.
IBM's stock has fallen more than 40 percent so far this
year as investors have worried about how the industry giant
will turn its stagnant revenue growth around and amid concerns
about a lack of financial disclosure.
Chief Executive Sam Palmisano, who took over for Louis
Gerstner on March 1, called it one of the most difficult
markets IBM had seen in decades but said he remained confident
that the company would gain or hold share in key areas.
IBM fared well, given the woes in the technology sector,
said Sunil Reddy, portfolio manager at Fifth Third Bank in
Cincinnati, Ohio, which owns IBM shares. "This is one of the
most difficult IT spending environments and IBM seems to have
come through," Reddy said.
IBM Chief Financial Officer John Joyce said the declines in
revenue aren't as steep as they were in the past. "Going into
the third quarter of this year ... we're not sliding like we
were last year," Joyce said.
He reined in expectations for 2002 only slightly, saying
the company expects earnings, excluding its money-losing hard
drive business and the charges, to be around $4 per share.
That's what analysts are currently expecting, without factoring
in the sale of that business, he said.
The company, whose results are a bellwether for the
influential technology industry, announced plans in June to
sell most of its hard-disk drive assets to Hitachi Ltd. for
$2.05 billion.
IBM said it earned $56 million, or 3 cents per share in the
second quarter, down from $2.04 billion, or $1.15 per share, a
year earlier. That includes an after-tax charge of $1.4
billion, or 81 cents per share. IBM said it earned 84 cents per
share excluding the charges.
SERVICES REVENUE
IBM said its second-quarter revenue was $20 billion,
including $379 million from its hard-disk drive business.
Excluding the hard-disk drive business, the company said it
booked $19.65 billion in revenue, down from $20.8 billion.
Revenue in its closely watched services business fell 1
percent to $8.7 billion from $8.74 billion a year earlier.
Joyce said IBM failed to sign three big contracts it had
hoped for this quarter, creating a shortfall of several billion
dollars in its services business. He downgraded his estimate
for 2002 services revenue, saying he expected modest revenue
growth in the second half of this year compared with previous
estimates for double-digit growth in the fourth quarter.
"Once the economy turns around, their long-term signings
might increase rapidly, but it still says that their long-term
revenue prospects are down at least until the economy
improves," said Tom Bittman, analyst at technology research
firm Gartner Inc.
IBM's hardware business continued to decline, with revenue
off 16 percent to $6.67 billion from $7.9 billion, excluding
the hard-disk drive business. Software revenue, however, rose 8
percent to $3.27 billion from $3.04 billion a year earlier.
IBM in June said it would take a pretax charge of $2
billion to $2.5 billion, primarily in the second quarter, to
cover job cuts, a restructuring of its microelectronics
business and the sale of its hard-disk drive operations.
IBM upped the charge's total on Wednesday, saying that as
it continues negotiating with Hitachi on the sale of the disk
drive business it may take more write-offs this year that push
that range up to $2.5 billion to $3 billion.
((Caroline Humer, New York Technology desk, 1 646 223-6181,
caroline.humer@reuters.com, with additional reporting by Peter
Henderson in San Francisco))
REUTERS
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