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NEW YORK: IBM, the world's largest computer company, on Wednesday reported higher third-quarter profits helped by software and services, but its top executive said the technology sector has not yet bounced back.
Armonk, New York-based International Business Machines Corp. reported revenues that rose 9 percent, helped by the weaker dollar but still shy of analyst expectations, and its stock fell 3 percent in after-hours trading.
The company, which sells everything from mainframes to microchips, backed analysts forecasts for the fourth quarter and said that it expects customers to spend more on technology in 2004. It said it would hire 10,000 people in areas like high-end services and software.
"Although it is too early to say that a rebound is at hand, we are confident that we will benefit from both a pickup in IT (information technology) spending and an economic recovery," IBM Chief Executive Sam Palmisano said.
IBM's report comes as other technology companies such as Intel Corp. and Motorola Inc. have reported stronger-than-expected quarters and could temper optimism about the long-awaited rebound, analysts said.
"It'll put a little bit of a damper on the sector. We're seeing positive signs but it isn't producing a broad-based impact on companies the size of IBM," said Soundview Technology analyst John Jones. He rates the stock an "outperform" and does not own the shares.
IBM shares were trading at $90.01 after hours compared with a close on Wednesday at $92.74 on the New York Stock Exchange.
IBM NET PROFIT RISES, REVENUES BOOSTED BY CURRENCY
IBM said net profit rose to $1.8 billion, or $1.02 per share, from $1.3 billion, or 76 cents per share a year earlier.
It said earnings from continuing operations, which excludes the hard-disk drive business it sold last year, rose to $1.8 billion, or $1.02 cents per share, from $1.7 billion, or 99 cents per share a year earlier.
Those results met the average forecast of $1.02 per share within a range of 98 cents to $1.07 per share, according to analysts polled by Reuters Research.
IBM said revenue increased to $21.5 billion from $19.8 billion a year earlier. Analysts estimates were for revenue of $21.85 billion, according to Reuters Research, a unit of Reuters Group Plc.
Total revenue was helped by the weaker dollar and acquisitions in the services and software sectors.
"The top line seems to be a little bit weaker than what we were expecting," said Sunil Reddy, portfolio manager for the Fifth Third Technology Fund, which owns IBM shares, referring to sales. "But they made the earnings number.
IBM said revenue from services increased 17 percent to $10.4 billion. It said it had signed more than $15 billion in new services contracts during the quarter.
Sales were helped by IBM's acquisition just over a year ago of PricewaterhouseCoopers Consulting.
Its microelectronics business, which has been losing money this year amid stiff competition and as it brings a new plant into production, posted an operating loss of $96 million, higher than a year earlier's $17 million but narrower than the $110 million it lost last quarter.
"This was somewhat better than we had anticipated," said Chief Financial Officer John Joyce during a conference call, adding that the technology business was helped by IBM's vast cache of technical patents.
The microelectronics division has been closely watched because missteps in chip production have taken a toll on its overall financial results.
Joyce said that analyst expectations for the fourth-quarter were "reasonable." Analysts currently expect earnings of $1.51 per share and revenue of $25.06 billion, according to Reuters Research, a unit of Reuters Group Plc.
Hardware revenues decreased 1 percent to $6.7 billion but sales from its systems group increased about 6 percent as sales of mainframe computers increased after the company introduced a new model earlier this year. Sales of server computers also improved.
Software revenues rose 11 percent to $3.5 billion, helped by the company's purchase of Rational Software, which closed in February of this year.
Operating profit in software rose to $861 million while global financing operating income increased to $292 million.
The company's gross profit margin increased to 36.3 percent, down from 36.9 percent last year.
Prior to the announcement IBM shares fell 16 cents, or 0.17 percent, on Wednesday compared with the broader American Stock Exchange Computer Hardware Index's decrease of less than 1 percent. IBM shares, which hit a 52-week high in intraday trading, have gained about 20 percent so far this year.
Reuters