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IBM Earnings Rise, Meet Expectations

By Reuters
Published | Updated

NEW YORK – International Business Machines Corp. reported a slightly higher second-quarter profit Wednesday as the world's largest computer maker's wide range of products and services buffered it from a downturn in the high-tech economy.

The Armonk, New York-based company reported net income of $2.0 billion, or $1.15 per share, compared with $1.9 billion, or $1.06 a year ago.

Chairman and Chief Executive Louis Gerstner said slow spots in the second quarter included personal computers, hard disk drives, and microelectronics.

"We also were not immune from some of the problems that affected many of our competitors in the second quarter," said Gerstner. "We saw ongoing weakness in PCs and hard disk drives and we continued to be hurt by the negative effects of currency translations."

"We expect that these factors will continue to work against us in the second half of the year," he added. "Additionally, we are now seeing signs of slowing in our microelectronics business."

Analysts polled by First Call expected IBM to earn $1.15 per share on average in the second quarter, with estimates ranging from $1.08 to $1.22 per share.

For the quarter, sales were $21.6 billion, flat with the same period a year ago.

Toni Sacconaghi, an analyst at Sanford Bernstein said: "On one hand, I think investors will be relieved that they made the EPS number, but revenues were weaker than most expected."

IBM's global services sales increased 7 percent, to $8.7 billion in the quarter. The company said it signed $16 billion in services contracts and finished the quarter with a services contract backlog of about $95 billion.

Hardware sales fell 5 percent, to $8.7 billion. Mainframe computer sales and sales of data storage products were cited by IBM as going strong.

Software sales fell 5 percent, to $3 billion.

The stock closed lower on the New York Stock Exchange trade ahead of the earnings report. Shares were off $4.25, or 3.9 percent, at $104.28.

IBM has outperformed the American Stock Exchange hardware index by 45 percent this year. The hardware index has underperformed the S&P 500 by 10 percent in the same period.