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IBM's Q4 Profit Jumps 12%

Helped by currency exchanges on the weak U.S. dollar and solid growth across all divisions, IBM's profit for the fourth quarter of 2004 jumped by 12 percent to $3.04 billion ($1.80 per share, up 16 percent over last year at the same time).

The results marked one of the strongest quarters ever for IBM, whose quarterly profit passed the $3 billion mark for the first time. Revenues rose by close to 7 percent to $27.7 billion in the quarter, up 6.8 percent from revenues of $25.9 million during the same time last year. Adjusting for currency exchanges, however, IBM's revenues were up by 3 percent.

The results largely met or beat most analysts' expectations.

"It was a very good year for IBM," said Mark Loughridge, senior vice president and chief financial officer at IBM. He said the company's full-year revenues of $96.5 billion were up 8 percent over 2003. If not for a one-time pension settlement charge during the quarter, IBM's revenues would have risen by 14 percent, he added.

Loughridge said among the trends the company sees in IT spending is an improvement in global markets, "where market conditions moved from economic recovery to moderate expansion," he said. The expectation is for growth of between 4 and 6 percent in some global markets, especially China, Russia and Brazil.

Global services brought in the usual lion's share of the quarter's revenues, rising by 10 percent to $12.6 billion. Although the division's revenues were strong, analysts were curious about the company's backlog.

But adjusting for currency exchanges on the dollar, the quarter was up by 6 percent in global services. Within that division, outsourcing contracts grew by 12 percent across all geographies. IBM said it signed services contracts totaling $12.7 billion and ended the quarter with an estimated services backlog, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and Maintenance, of $111 billion. The company also hinted that acquisitions would help improve the services business going forward.

Hardware revenues from continuing operations increased 4 percent (or 1 percent, adjusting for currency) to $9.5 billion in the fourth quarter. Within hardware, revenues from the systems and technology group totaled $5.9 billion for the quarter, up 5 percent on eServer revenue increases, including a 25 percent increase in xSeries servers and a 15 percent increase in pSeries UNIX servers, IBM said.

IBM's pSeries and xSeries posted strong results, growing around 15 percent year-over-year, Loughridge said during a conference call. "Customers continue to add new workloads to this platform as a centerpiece of on-demand infrastructures," he said. But revenues from the zSeries mainframe product fell compared with the prior-year quarter. IBM said revenues for the iSeries midrange servers and storage systems decreased primarily as a result of a transition to new products.

Within IBM's personal systems group, which includes the PC division that it's selling to Chinese PC maker Lenovo, revenues improved by 2 percent to $3.5 billion.

Software revenues improved from the previous quarter, rising by about 7 percent to $4.5 billion. Adjusting for currency exchanges, the increase was 3 percent. The usual strong performers were middleware brands, especially WebSphere, which rose by 18 percent, DB2 (up by 15 percent), and Rational developer tool products (up by 8 percent). Operating system revenue inched up by 1 percent to $693 million compared with the fourth quarter of 2003.

Several factors helped drive the results, Loughridge added, such as customers that are investing in business process transformation services, which includes outsourcing, re-engineering, strategic and change consulting.

Sam Palmisano, IBM's chairman and chief executive officer, said the results reflected the strength of IBM's integrated business model and pointed out that the company returned $8.3 billion to shareholders through dividends and stock buybacks during 2004, the most in its history.

IBM's full-year profit (from continuing operations, which includes a one-time $320 million pre-tax charge to settle certain pension claims) came in at $8.4 billion, up by 11 percent over its profit of $7.6 billion for 2003. Earnings per share came in at $4.94, up 14 percent compared with the same time in 2003. Total revenues from continuing operations for the year were $96.5 billion, up 8 percent from 2003 revenues of $89.1 billion.



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