IBM Q4 Income Off 13%; Hits EPS Target

By Erin Joyce

International Business Machines said fourth quarter profits were down by 13 percent, driven by continued weakness in sales of personal computers and hard disk drives worldwide.

“It’s been a tough year but our (overall) results were strong,” said John Joyce, IBM’s chief financial officer.

The Armonk, NY-based IBM said fourth quarter net income was $2.3 billion, or $1.33 per share, one penny better than consensus estimates analysts had expected. Net income was 13 percent lower compared to the $2.7 billion, or $1.48 per share, it declared during last year’s final quarter.

Revenues were down 11 percent to $22.8 billion compared to the same, year-ago quarter, below Wall Street’s expectations. Annual sales were $85.9 billion, down 2.9 percent from 2000.

Joyce said despite a difficult year for PCs and hard disk drives, whose sales were both down by 35 percent from the prior year, IBM managed to hit its earnings per share estimates.

The results also reflected a difficult economic climate worldwide in addition to continued weakness in personal computers and OEM technology. But, “as always, we benefited from the breadth of our portfolio,” Joyce said.

Software and global services together generated nearly 80 percent of the company’s profits, and fared the best among the company’s divisions.

The global services unit saw a slowing in maintenance and service sales amid a particularly difficult year for signing consulting contracts, but still brought in the lion’s share of overall sales at $9.1 billion, down about 1 percent from the prior year.

“We felt pressure in consulting and system integration services as everyone in the industry did,” Joyce said. Within the division, Web hosting signings were up 45 percent to $2.4 billion.

Software sales were the strongest of all the divisions, up by 8 percent to $3.8 billion compared to the year before. The best performers were middleware sales, which were up by 10 percent.

Hardware revenues continued to feel the brunt of the technology recession in particular, dropping by 24 percent to $8.7 billion for the quarter. Revenues from the company’s UNIX-based pSeries declined, in large part because of a transition to its new “Regatta” family of UNIX servers, which began shipping on December 14.

Other enterprise sales were $3 million, off by 20 percent from the prior year.

Louis Gerstner, IBM chairman and chief executive officer, called the results a solid finish to a demanding year.

“We achieved strong profitability and we continued to gain market share in high-priority segments of our software, storage and server businesses. For example, our new Regatta UNIX servers, which didn’t begin shipping until late in the quarter, are sold out.”

The services business had over $15 billion in new signings, he said, many of which came late in the quarter. IBM closed out the year with $6.4 billion in cash.

Shares closed up $2.65 at $119.90 on Thursday before the results were released.

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