IBM Hits Profit, Misses Guidance
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IBM reported a profit during its first quarter of 2005 but missed its earnings guidance by five points. Big Blue blamed difficulty closing key deals and signs of slowing growth in overseas markets as reasons for the numbers that were just below what they laid out.
Net income was $1.4 billion for the quarter, up by about 2.9 percent from its profit of $1.36 billion from the same time last year. IBM said revenues from continuing operations for the first quarter were $22.9 billion, up 3 percent, compared with revenues of $22.2 billion for the first quarter of 2004.
Overall, first-quarter 2005 earnings per common share came in at 85 cents (including the effect of expensing share-based compensation), compared with diluted earnings on a similar basis of 79 cents per share in the first quarter of 2004, up 8 percent.
Most analysts polled were expecting EPS of 90 cents.
In a fairly rare admission, Samuel Palmisano, IBM's chairman and CEO, said: "After a strong start, we had difficulty closing transactions in the final weeks of the quarter, especially in countries with soft economic conditions, as well as with short-term Global Services signings. As a result, we did not achieve all of our goals for the quarter."
Middleware software and midrange systems results were solid, his statement continued, and he said the company "grew significantly" in Business Performance Transformation Services and in the emerging markets of China, Brazil, India and Eastern Europe. "We returned nearly $4 billion to investors in the quarter through share repurchases and dividends. We are taking appropriate measures to sharpen our execution, as we continue to implement our global growth strategies."
Big Blue also cited its previously announced plans to expense equity compensation costs during the first quarter as impacting its numbers guidance, which it adopted in accordance with federal regulators' guidance.
Global Services revenues, which pull in about half of IBM's overall revenues, rose by 6 percent (3 percent if adjusted for currency exchanges) to $11.7 billion in the first quarter. Not counting maintenance contracts, revenues for global services actually rose by 7 percent, or 4 percent adjusted for currency.
Hardware revenues were flat, coming in at $6.7 billion during the first quarter, about the same as a year ago. Take away the currency exchange and revenues actually fell by 2 percent in the division. Within the hardware division, the Systems and Technology Group carved out $3.9 billion in revenues, up 2 percent from the same time last year.
Key drivers were IBM's pSeries UNIX servers, whose sales rose by 12 percent, and xSeries servers, which rose 8 percent. Revenues for the iSeries midrange servers increased 1 percent and storage systems and technology OEM revenue was up by 5 percent and 2 percent, respectively.
IBM said total delivery of zSeries computing power, as measured in MIPS (millions of instructions per second), decreased 11 percent.
Software revenues came in at $3.6 billion, up by 2 percent, but flat if adjusting for currency exchanges.
The divison's strong performers -- WebSphere, DB2, Rational, Tivoli and Lotus products -- saw 3 percent revenue growth to $2.8 billion, up 3 percent versus the first quarter of 2004. Key drivers in this group were the WebSphere lines, and Tivoli, which grew by 11 and 15 percent, respectively. Revenues from Rational software (integrated development tools) were flat compared with the first quarter of 2004.
Analysts were bracing to see how the market reacts to IBM's results when trading in major markets resumes for IBM on Friday.