IBM meets Street, affirms targets

IBM meets Street

April 18, 2001: 6:10 p.m. ET

Tech titan hits 1Q profit target, on track for 2001 goals

NEW YORK (CNNfn) - IBM Corp. on Wednesday turned in a first-quarter profit that was in line with expectations and said it remains on track to hit its profit target for 2001.

"We remain on track for your consensus earnings per share estimate for 2001, which is consistent with our longer term business model," John Joyce, IBM's chief financial officer, told analysts during a teleconference Wednesday evening.

The consensus estimate of analysts polled by earnings tracker First Call is for IBM to earn $4.87 per share this year, compared with $4.44 per share in 2000.

He said the company is aiming to deliver "high single-digit revenue growth" for the year. Analysts are currently looking for total revenue of about $94.1 billion, suggesting a 6.4 percent increase over the $88.4 billion IBM reported last year.

After the close of trading, IBM said it earned $1.75 billion, or 98 cents per share, during the first quarter. That's in line with the profit analysts had expected, and is up 18 percent from 83 cents per share during the same period a year earlier.

At $21 billion, IBM's first-quarter revenue rose 8.8 percent from the $19.3 billion it reported during the same period a year earlier and was slightly above the $20.8 billion analysts had generally expected, according to the First Call survey.

IBM (IBM: up $6.80 to $106.50, Research, Estimates) shares rose in New York Stock Exchange trade ahead of the earnings results. They were quoted at $113.75 in extended hours trade afterward.

IBM is the world's largest supplier of computer hardware and a leading software supplier. It also has the world's largest technology services business, which accounts for roughly 35 percent of its total sales.

The Armonk, N.Y.-based company is one of a scant few technology outfits that has not warned the Street of weaker first-quarter results. When IBM reported its fourth-quarter results in January, executives said the company's diverse product mix, global spread and focus on growth areas would insulate it from any short-term weakness and enable it to meet its profit targets for 2001.

"At that time, we also recognized that we'd feel price pressure in PCs and hard-disk drives," Joyce said Wednesday. "And our expectations here were right on track as well."

Joyce said sales growth was stronger in its services, microelectronics and its network server and storage-systems businesses, while the slowdown in technology spending hurt in some areas, including its desktop PC, disk-drive and computer display businesses.

Check on other tech blue chips
Sanford C. Bernstein analyst Toni Sacconaghi said Tuesday IBM is relatively well positioned to weather the downturn in technology spending that has prompted so many of its counterparts in the high-tech industry, including Sun Microsystems (SUNW: Research, Estimates) and Cisco Systems (CSCO: Research, Estimates), to slash revenue and earnings forecasts.

Easy comparisons to last year's results, extraordinary services contracts the company signed over the last three quarters -- which take six- to- nine-months to translate into revenues -- and strong mainframe computer shipments all bode well for Big Blue, Sacconaghi said.

Even if IBM's top line is pressured this year, the company has demonstrated its ability to deliver strong earnings growth in the face of weaker-than-expected revenue in each of the last four quarters, Sacconaghi said.

IBM's stock has held up relatively well amid the broader downturn in the U.S. stock market over the past year, with shares ranging between a low of $80.06 and a high of $134.93.

Behind the numbers
IBM's said its first-quarter revenue from computer hardware totaled $8.5 billion, up 10.8 percent from the same period a year earlier.

Sales of enterprise systems, which includes network servers and storage products, totaled $3.3 billion, up 6.2 percent, while pre-tax income from enterprise systems rose 6 percent to $391 million. Meanwhile, sales of personal computers and printing systems totaled $3.2 billion, a 2 percent rise, and that business posted a pre-tax loss of $58 million during the quarter.

In the services area, IBM logged total revenue of $8.5 billion, which reflects a 12.2 percent increase over the same period a year earlier. IBM's Global Services business accounted for $1.1 billion of its first-quarter pre-tax income.

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Total software revenue totaled $2.9 billion, down a fraction of a percent from the same period a year earlier. The company's software business logged pre-tax income of $586 million during the first quarter.

IBM's Global Financing business logged total revenue of $832 million, which is an 2.1 percent increase over last year's first quarter, while that business represented $273 million of IBM's pre-tax income.

Revenue from the IBM's "Enterprise Investments/Other" segment, which includes custom hardware and software products for specialized customer uses, declined 19.2 percent to $276 million and posted a pre-tax loss of $140 million.

IBM's first-quarter gross margin, the percentage of sales remaining after subtracting product costs, was 36.1 percent. That's down slightly from the 37.7 percent gross margin it reported during the prior quarter but an improvement over a gross margin of 35.8 percent during the same quarter a year ago.