ibm shares soared in after-hours trading, gaining more than $17.50 to trade at $189.37. nice move.
regards
April 22, 1999
Strong Earnings for IBM
By LAWRENCE M. FISHER
n another sign of continued health for the technology sector, the International Business Machines Corporation yesterday reported first quarter earnings well in excess of analysts' estimates. I.B.M. said its results were led by strong sales of services and software, which accounted for 60 percent of gross profits.
Shares of I.B.M., which reported its results after the close of the market, closed at $171.875, up $2.125 on the New York Stock Exchange. But its shares soared in after-hours trading, gaining more than $17.50 to trade at $189.37.
Analysts said that I.B.M.'s results, coupled with the Microsoft Corporation's strong performance on Tuesday, should counter the gloomy scenario painted for the technology sector this quarter after the Compaq Computer Corporation delivered half the expected earnings and the Intel Corporation posted earnings widely viewed as disappointing.
"This is just what the tech doctor ordered," said John B. Jones Jr., an analyst with Solomon Smith Barney. I.B.M.'s service business, intellectual property and distribution put it in a different class than Compaq, he said.
"Compaq has many of the same pieces, but not the same quality," Mr. Jones said. "Compaq addresses the world from a PC-centric standpoint. I.B.M. addresses it from a customer-service standpoint."
Though some analysts said I.B.M.'s better-than-expected results reflected the company's ability to manage expectations, they also pointed to a growing divide between leaders and laggards in the technology sector. I.B.M. has been able to position some of its traditional strengths, in database management software and large servers, as essential tools for electronic commerce. The company's huge consulting practice is also riding the Internet wave as customers rush to offer good and services on the Web.
Other computer companies that have established a strong Internet identity, like Apple Computer Inc. and Sun Microsystems Inc., also reported stronger than expected results this quarter.
Sun's share have fallen, however, after the company warned that sales might slow in the second half of the year if companies defer technology purchases due to year 2000 concerns. That same warning was issued in an extremely strong earnings report on Tuesday by Microsoft, and its stocks also closed down slightly yesterday.
For the quarter, I.B.M. reported earnings of $1.47 billion, or $1.55 per diluted share, up 42 percent from $1.04 billion, or $1.06 per share, in the comparable period a year ago. Revenues rose 17 percent to $8.58 billion from $7.32 billion in the first quarter of 1998.
Per-share figures reflect a decrease in the average number of shares outstanding to 911.9 million, compared with 950.2 million in the first quarter of 1998. I.B.M. spent approximately $2.1 billion on share repurchases in the first quarter, up from $1.6 billion in the fourth quarter of 1998.
Analysts expected I.B.M. to earn $1.41 per share, according to First Call. It was the 12th consecutive quarter in which I.B.M. has beaten the consensus estimate.
"We started 1999 with a strong quarter," Louis V. Gerstner, Jr., I.B.M.'s chairman and chief executive, said in a statement.
"We saw a significant improvement in our business in Asia, and we also had double-digit revenue growth in Europe and the Americas. Services is clearly the largest and fastest-growing portion of the information technology industry, and we continue to extend our leadership position each quarter."
I.B.M. said said sales in the Americas had increased 13 percent, to $8.8 billion; in Europe, the Middle East and Africa 20 percent, to $6.3 billion; and in the Asia-Pacific region 20 percent, to $3.5 billion.
Hardware sales were up 17 percent, services were up 19 percent and software up 10 percent. I.B.M. said it signed $9.8 billion in services contracts in the first quarter and concluded the quarter with a total services contract backlog of approximately $55 billion.
In a telephone conference call with securities analysts, Douglas Maine, I.B.M.'s chief financial officer, said that personal computer sales were up 50 percent, with a "significant improvement in profitability." However, I.B.M. continues to lose money on PC sales, which contributed to an overall decline in the company's gross profit margin.
In response to analysts' questions about slowing growth for information technology in the second half of the year, possibly due to year 2000 issues, Mr. Maine said he did not see it. "There's an absence of anything we're hearing from customers that suggests a slowdown," he said. "The I.T. sector in 1999 will continue to be the key driver of worldwide G.D.P. growth."
Copyright 1999 The New York Times Company |
