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IBM backs 2003 expectations for growth

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CIOL Bureau
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Caroline Humer



NEW YORK: IBM Corp. said it expected to return to financial growth in 2003 as the computer services, hardware and software company cuts costs and takes market share. At a meeting with industry analysts here, IBM Chief Financial Officer John Joyce called Wall Street estimates for earnings and revenue growth in 2003 "reasonable."

Earnings per share in 2003 for the Armonk, New York-based company are expected to grow 10 percent while revenues are seen up about 8 percent, according to analyst estimates for 2002 and 2003 compiled by research firm Thomson First Call. Shares of IBM rose a bit in after market trading to $79.40 compared with their NYSE close of $79.35.



Joyce said that he expected technology spending to increase as compared with gross domestic product growth in the long term but didn't give an outlook for new corporate purchases in 2003. He also declined to comment on the current quarter.



"We think the IT industry will grow faster than GDP over time," Joyce said of spending for information technology during a meeting with analysts in New York on Wednesday.



IBM's growth has been hurt this year by the decline in corporate technology spending that hit certain businesses, such as its microelectronics division, particularly hard. Analysts said after the meeting that IBM had effectively confirmed its previous fourth-quarter guidance by declining to comment on it.



"It's a tacit endorsement of the fourth quarter," Bear Stearns analyst Andrew Neff said. "They seem to be moving beyond the transition phase under Lou Gerstner into a growth phase under (Samuel) Palmisano."



Chief Executive Samuel Palmisano took over for long-time Chief Executive Louis Gerstner in March and will replace him as chairman at the end of the year. Since taking control, Palmisano has shed some unprofitable businesses and made the company's largest acquisition ever in dollar terms.



PWC Integration on the track


The presentation by Joyce and IBM business heads came just a few weeks after Palmisano unveiled IBM's on-demand computing strategy, which includes everything from allowing customers to pay for only as much computing as they need to helping them streamline their supply chains.



Ginni Rometty, head of IBM's consulting business, said during the meeting that integration of PricewaterhouseCoopers Consulting, which it bought for $3.5 billion on Oct. 2, was on track to be complete by the end of the year. Meanwhile IBM's head of technology John Kelly said that he wants the microelectronics division to return to profits in the fourth quarter and to be profitable in 2003.



"In the third quarter we were very close to profitability," he said, adding that the company is making progress rapidly and targeting profitability for the fourth quarter. John Jones, an analyst at Soundview Technology Group, said that it was a good sign that Joyce had chosen to comment on the 2003 outlook during a meeting in which IBM typically discusses only broad strategy.



"The implication is they feel pretty good where they are right now," Jones said. "It's the most positive thing he could say." During the meeting, Joyce said, "Analysts' current average for revenue expects to see IBM get back to some growth next year. In light of current GDP estimates, we think this is a reasonable objective."



"Based on this revenue growth, and coupled with all that we have discussed today, the Street's average estimate for growth in earnings per share for 2003 is also reasonable," he said. IBM's sales are expected to fall about 7 percent in 2002.



Analysts see IBM reporting earnings of $4.31 per share in 2003, up from an expected $3.91 per share in 2002. They see 2003 revenue of $87.02 billion, up from an expected $80.7 billion this year, according to First Call. Those figures exclude the company's hard disk drive business, which IBM expects to sell by the end of this year.



IBM shares have fallen 34 percent so far this year while the American Stock Exchange Computer Hardware index is off 31 percent.



(Additional reporting by Ilaina Jonas in New York)



© Reuters

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