Caroline Humer
NEW YORK: International Business Machines Corp. on Tuesday said that for the
past five quarters it booked a total after-tax loss of $515 million from its
discontinued hard disk drive operations.
The added disclosure came in a regulatory filing a week ahead of the
company's second-quarter earnings announcement, when it had planned to release
the information for the year-earlier period, and at a time when investors are
examining all financial statements closely.
"This is more or less what I expected," said Jay Stevens, an
analyst at Buckingham Research Group. The news pushed IBM shares up a few cents
in after-hours trading to $69.70 on the Instinet brokerage system.
IBM has been under pressure to provide more financial disclosure for the past
six months as investors have become increasingly critical of what they say has
been a long history of managing its earnings growth. According to the filing,
IBM's hard-disk drive operations subtracted $92 million from net income in the
first quarter of 2002 and $423 million for the four quarters of 2001.
Big Blue had not previously broken out the financial results of the unit. IBM
said that net income after discontinued operations was $7.713 billion in 2001
and $1.192 billion in the first quarter of 2002.
The fourth-quarter of 2001 was a big loser for IBM's hard-disk drive
business, which has struggled with profitability for years. IBM said that its
after tax loss from the operations that quarter was $232 million and that net
income after discontinued operations was $2.333 billion.
IBM also stripped out $3.32 billion in revenues from the hard-disk drive
operations for the five quarters. For 2001, the revenues are $83.067 billion,
down from the $85.866 billion the company had previously reported. In the first
quarter of 2002, IBM's revenues were $18.03 billion after the sale of hard disk
drive assets, compared with the $18.551 billion it previously reported.
IBM said in June that it would sell its hard drive operations for $2.05
billion to Japan's biggest electronics maker Hitachi, which will combine them
with its own in a joint venture that Hitachi will fully own in three years.
Hitachi will initially own 70 per cent of the joint venture.
It will lay out next week a $2.0 billion to $2.5 billion pre-tax charge that
it announced last month that will cover the hard disk drive business and other
actions, including closing some microelectronics manufacturing capacity and job
cuts.
The sale of the unit requires IBM under Generally Accepted Accounting
Principles to reclassify previous quarterly income as either income from
continuing operations, or income from discontinued operations, which are in this
case the hard disk drive operations.
IBM has been pressured this year by investor concerns about accounting. Back
in February, the company was criticized for not disclosing how the sale of
certain assets, like intellectual property, affected its earnings.
The company, whose chief executive Sam Palmisano took over from chairman and
long-time CEO Louis Gerstner on March 1, said it would begin disclosing more
financial information in its annual report.
The stock has fallen, however, as investors worry not only about accounting
but about the outlook for corporate technology spending, which declined in 2001
and is expected to fall again this year.
UBS Warburg analyst Don Young said in a note on Monday that selling the hard
disk drive business should help IBM to meet earnings expectations for 2002.
Young declined to comment further on Tuesday after the IBM numbers were
released.
Analysts currently see the company earning $4 per share in 2002, according to
Thomson First Call. IBM shares have fallen 42 per cent so far this year to trade
at levels not seen since the fall of 1998 while the broader American Stock
Exchange Computer Hardware Index has given up 27 per cent.
(C) Reuters Limited.