IBM Profit Better Than Expected; PC Sales Get Credit
International Business Machines Corp. reported a third-quarter profit Monday that was a shade better than what Wall Street had expected, boosted by strong sales of personal computers and services.
The world’s largest computer maker said net earnings were $1.29 billion, or $2.45 a share, for the quarter, contrasted with a loss of $538 million, or 96 cents, in the year-ago period. (Excluding a one-time charge of $1.8 billion related to its acquisition of Lotus Development Corp., IBM’s earnings were $1.3 billion in the 1995 quarter.) Profit was down 1.4% from the second quarter.
Analysts surveyed by IBES International Inc. had been expecting a per-share profit of $2.42 in the quarter.
Sales grew 8%, to $18.06 billion from $16.75 billion, on the strength of PCs, minicomputers and computer services, IBM said. As expected, sales of mainframe computers declined.
Wall Street took IBM shares for a roller-coaster ride after the report. The stock fell initially, then rallied on comments by the chief financial officer, closing a fraction higher.
The midday rally took IBM to a new high for the year of $135.375. The stock closed at $130.125, up 75 cents on the New York Stock Exchange.
The rally followed remarks by Chief Financial Officer G. Richard Thoman, who said in a meeting with analysts in New York that he was “very comfortable†with the computer giant’s prospects for the rest of 1996.
“I feel very good about the quarter and very good about the year,†Thoman said.
But analysts were still concerned about company warnings that currency exchange rates, low prices for memory chips and higher-than-expected restructuring costs will hurt fourth-quarter results.
“There were some cautionary comments about the fourth quarter,†said Jay Stevens, a Dean Witter analyst who was among several who lowered their fourth-quarter profit estimates.
Analysts said they generally were pleased with IBM’s ongoing cost cutting, its successful transition to new products in all its hardware areas and its investments in its growth. Revenue growth was also better than expected.
“I think the most impressive was the revenue growth,†said Stephen Dube, an analyst with Wasserstein Perrella.
Though mainframe computers no longer generate sales growth for Armonk, N.Y.-based IBM, they remain one of the company’s important profit centers.
Thoman told analysts that more of IBM’s mainframes sales were coming through its computer services business and that IBM will not see the full impact of sales in one quarter for its new machines.
“If you sell a mainframe for $100,000 and you lease it or it’s on a services contract . . . rather than $100,000 at once, you have $8,000 a quarter,†Thoman said.
The company said revenue was higher in North America, Asia and Latin America but was flat in Europe. Revenue at its services division grew 26% to $3.9 billion.
Total hardware sales rose 8% to $8.4 billion. Sales of PCs, AS/400 minicomputers and storage systems were up, while those of RS/6000 work stations, mainframes and semiconductors fell. IBM said pricing pressures hurt its semiconductor business.
Software revenue was off 1% to $3.1 billion, largely due to a decline in host-based software, which runs on mainframes. Distributed software revenue grew significantly from the 1995 period. Maintenance revenue fell 7% to $1.8 billion.
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Slight Dip
IBM’s quarterly earnings, in billions of dollars:
1996
*--*
Quarter Earnings Third 1.29 Second 1.35 First $1.35
*--*
1995
*--*
Quarter Earnings Fourth 1.71 Third --0.54* Second 1.72 First 1.29
*--*
1994
Fourth Quarter: 1.20
*Due to a one-time $1.8-billion charge for the purchase of Lotus Development Corp.
Source: Bloomberg Business News; Times and wire reports
