IBM Earnings Fall but Within Forecasts

International Business Machines Corp. on Thursday said fourth-quarter earnings fell from a year ago, the second quarterly decline in a row, as customers concerned about an economic downturn held back on buying new computer systems.

The company 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.

IBM -- which sells everything from PCs to giant mainframe computers, to software -- said its revenue declined to $22.8 billion, down 11 percent from the $25.6 billion booked during the year-earlier quarter.

Analysts had expected earnings of $1.32 per share within a range of $1.22 to $1.37 per share, according to research firm Thomson Financial/First Call.

Looking ahead, IBM Chief Executive Louis Gerstner said in a statement: "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 posted net income of $2.3 billion, down from $2.7 billion in the year-ago period.

Salomon Smith Barney analyst John Jones said revenues were about $1 billion lower than he had expected, with blame roughly equally divided between currency effects and weakness in the personal computer business.

But he gave IBM credit for meeting the Wall Street earnings consensus in a tough environment.

"From the comments in the release, I don't see anything that points to a disastrous first half, and that's a positive," he added.


IBM said services revenue declined by 1 percent, a smaller decline than in hardware, where revenues were off by 24 percent. Personal computers and sales to other PC original equipment manufacturers (OEMs), were to blame.

"We had our share of challenges too, but these were largely expected: slow PC sales and ongoing weakness in our OEM business," Gerstner said.

The company said that revenues for its mainframe servers were essentially flat while revenues from its servers based on the widely used Unix operating system were flat. Revenue from data storage increased.

IBM said that it booked about $15 billion in new contracts in its services division during the fourth quarter, pushing the total backlog up to $102 billion.

"IBM has transformed itself from a hardware and software company to a services company." Sam Albert of Sam Albert Associates, a consultancy based in Scarsdale, N.Y. "The competition would die for that backlog."

The Armonk, New York-based behemoth 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.

The company has posted earnings and met Wall Street analyst expectations, however, due to the steady stream of revenue its services and software businesses provide.

IBM shares gained 42 percent in 2001 compared with the American Stock Exchange Hardware index , which was down 25 percent.

On Thursday, ahead of the earnings announcement, IBM shares closed at $119.90, up $2.50, or 2.1 percent in New York Stock Exchange trading.