IBM first quarter net income up 15%

NEW YORK: International Business Machines Corporation on Wednesday reported a 15 per cent rise in first-quarter net income, helped by strong sales of powerful business computers, microelectronics and services. In stark contrast to rivals that have consistently warned of disappointing results, the world's largest computer maker said that, while not immune to spending cutbacks, it still expected to meet its sales and earnings targets for 2001.

"Everyone else across the board is pulling in the reins, so this certainly is positive," said Rob Schafer, an analyst at Meta Group. The company said first-quarter net income rose to $1.75 billion, or 98 cents per share, compared with $1.52 billion, or 83 cents per share, a year earlier.

Analysts had expected earnings in a range of 89 cents to $1.02, with an average estimate of 98 cents, according to Thomson Financial/First Call. Sales rose 9 per cent to $21 billion in the quarter, the company, based in Armonk, N.Y., said.

By contrast, Hewlett-Packard Co. on Wednesday said it was tripling the number of expected job cuts in the midst of a weaker second quarter. Networking equipment maker Cisco Systems Inc. this week also slashed its outlook and its workforce.

IBM's report came after the New York Stock Exchange close. In after-hours trading, it rose to $110 from $106.50 at the end of the regular session, where it had gained $6.80 amid a broader market rally. The stock has outperformed the S&P 500 index by about 30 per cent this year.

To outperform competitors

Chairman and Chief Executive Louis Gerstner said that IBM was "no better than others" at predicting the economy, but would do well no matter what the climate was. "IBM is certainly not immune to broad cutbacks in customer spending. However, based on recent results, we expect we will outperform most of our competitors in whatever market emerges this year," Gerstner said in a statement.

Speaking to analysts on a conference call, Chief Financial Officer John Joyce said the company was on track to meet Wall Street's earnings estimates for the full year, which average $4.87 per share, compared with $4.44 last year.

"Based on our results and everything we know today about the coming year, we remain on track for your consensus earnings per share estimate for 2001," Joyce said. He added that analysts and investors should still expect the company's previous target for high-single digit sales growth.

IBM's view of the year ahead is regarded as an indicator of what to expect for the rest of the tech sector and the stock market at large. Joyce said that overall he did not see a slowdown in Europe, a region carefully watched as a potential next shoe to drop.

"We recognize that the US market remains volatile and uncertain," he said. "And it is likely that other regions of this global market are feeling some of the same pressures. We are certainly not immune to a major worldwide economic downturn." "With the possible exception of Germany, where the biggest issue is in the telecom sector, we are not seeing a slowdown in demand for e-business applications," he added.

Investors in tech stocks see IBM as a safe haven for its wide base of products that range from custom microchips to supercomputers. The company has sidestepped the brunt of a tech downturn in part on the strength of an upgrade of its mainframe computers, expanding microelectronics business and global reach which makes it less vulnerable from a cooling of any single economy.

"Times like these play to our strengths as a diversified, services-led company," Gerstner said. "Moreover, many in our industry have gotten a bit carried away over the last few years by the exaggerated expectations for the Internet world," he added. He said that IBM was focused on its services business and creating technological breakthroughs to invent new products.

IBM said that hardware sales rose 11 per cent to $8.5 billion - with strong sales of powerful computers that use the Unix operating system to run Web sites and other networks, data storage gear, as well as mobile PC sales. Gerstner said that the bad news in the quarter was in the desktop personal computer business.

"The desktop segment is hurting," he said, adding it was not just a cyclical, or temporary, problem. He said weakness in PCs also hurt the hard disk drive and display businesses, which sell to the PC segment. Salomon Smith Barney analyst John Jones said it was IBM's ability to handle large, complex business projects that was its strong point.

"These guys have really focused on the heavy lifting part," he said. "On selling to the Fortune 1000 customers, who are not just buying PCs, but are buying really big complex projects."

(C) Reuters Limited 2001.