Caroline Humer
NEW YORK: International Business Machines Corp. said on Thursday that
fourth-quarter earnings and revenues fell from a year earlier as the economic
downturn hit spending on computer systems and services.
IBM's third straight quarterly revenue decline, which included a surprising
fall in services revenue, disappointed investors and drove the stock down 4.3
per cent, or $5.20, to $114.70 in after-hours trading on Instinet.
It had closed at $119.90 on the New York Stock Exchange before the earnings
were announced, a gain of $2.50 that was quickly erased.
"People didn't like, I'm sure, that services revenue were down. That was
probably the surprise here," said Soundview analyst Gary Helmig. "Of
course the stock was up two bucks during the day, probably on anticipation of
something better than what we saw."
Armonk, New York-based IBM sounded a positive note for 2002, however, backing
Wall Street estimates for an earnings increase and saying that personal
computers and microchips will return to profits due to cost cuts and that
services should hit double-digit growth in the second half.
"Business conditions remain difficult as we enter the new year, although
we believe that our business will strengthen as we move through the year,"
IBM chief executive Louis Gerstner said in a statement. IBM said it earned $1.33
per share, down from the $1.48 per share it earned in the year-earlier quarter,
but in line with analysts' expectations. It posted net income of $2.3 billion,
down from $2.7 billion a year-ago.
IBM -- which sells everything from PCs to giant mainframe computers to
computer services -- said its revenue declined 11 per cent to $22.8 billion from
$25.6 billion during the year-earlier quarter.
The company attributed the decline primarily to weakness in personal
computers and sales of semiconductors and hard disk drives to other computer
makers. IBM, for instance, sells microchips to Apple Computer Inc..
Revenues fall short of expectations
Analysts had expected earnings of $1.32 per share within a range of $1.22 to
$1.37 per share on revenue of $23.8 billion, according to research firm Thomson
Financial/First Call.
Services revenue, the company's largest division, had been expected to grow
but instead fell 1 per cent to $9 billion. The company said that many of the
orders it had expected earlier on in the quarter came in late, pushing revenue
into 2002.
IBM said it had about $15 billion in new contracts in its services division
during the fourth quarter, pushing the total backlog of orders up to $102
billion. For the year, IBM brought in $85.9 billion in revenue, down from $88.4
billion in 2000.
IBM is one of many technology companies that was hurt in 2001 as the economy
slid into a recession and corporations that spent freely on new hardware
tightened their belts. Microchips, for instance, are in their worst downturn
ever.
"I think it is mostly economy. This is a good company, they are well
run," said one analyst at a money management firm that owns IBM shares.
"It's not great, but it doesn't hurt me. You don't expect extremely great
things out of companies now."
Other analysts also gave IBM credit for meeting the Wall Street earnings
consensus in a tough environment, but said it needs to show revenue growth.
"Kudos for the strong expense management, but the Street generally prefers
revenue growth to cost containment," Sanford C. Bernstein analyst Toni
Sacconaghi said.
IBM should be able to meet Wall Street's forecast for earnings per share in
2002, chief financial officer John Joyce said in a call with analysts on
Thursday. That forecast is for earnings of $4.81 per share compared with 2001
earnings of $4.35 per share.
Joyce said IBM will be at an advantage in 2002 to its competitors, which
includes companies like Sun Microsystems and Hewlett-Packard Co. and Compaq
Computer Corp.. HP and Compaq are planning to merge.
"With the irrational exuberance associated with the dot-com phenomenon
behind us, customers are really starting to expect more of their IT
vendors," Joyce said in a call with analysts. "When the economy turns,
customers are not going to return to that roll your own IT era."
That growth will come as the personal computer business and microelectronics
cuts costs and return to profits and the company's software, server, storage and
services business increase market share, Joyce said.
Software picks up when hardware falls
IBM said that hardware revenues were off by 24 per cent at $8.7 billion with
sales of personal computer and printing division declining by 32 per cent.
Revenues from mainframe servers were essentially flat while sales of its
servers based on the widely used Unix operating system were lower. Revenue from
data storage increased.
Software revenue, meanwhile, grew by 6 per cent to $3.8 billion. The company
said data management software grew 48 per cent and software used for Internet
applications, called WebSphere, grew 43 per cent.
"IBM has transformed itself from a hardware and software company to a
services company." said Sam Albert of Sam Albert Associates, a consultancy
based in Scarsdale, NY "The competition would die for that backlog."
(C) Reuters Limited.