Hardware, On Demand Help Drive IBM’s Profit

Technology bellwether IBM reported a profit of $2.7 billion ($1.55 per share) during the fourth quarter of 2003, helped by continued strength across its hardware lines, global services division, and middleware segments.

The profit was an improvement of about over 40 percent compared to its net income of $1.9 billion, (59 cents per share) during the same, year-ago period.

Revenues were $25.9 billion for the quarter ending Dec. 31st, a 9 percent increase over its revenues of $23.7 billion in the last three months of 2002. Officials said the strong results, especially in hardware and software lines, reflected the continued traction of its on-demand strategy of offering utility-like computing services and systems.

In a statement ahead of a conference call to discuss the quarter, Samuel Palmisano, IBM’s chairman and CEO, said the results were an “encouraging end to a year in which we steadily gained momentum and posted record revenues.”

As for the 2004 outlook in general, he said the client buying environment was steadily improving. The company is “enthusiastic about our prospects for this year and beyond.”

Diluted earnings per common share were $1.56 while diluted EPS during the same time last year were $1.11. Analysts were generally expecting earnings per share of $1.50 for the quarter.

Global services, which accounts for about half of IBM’s quarterly revenues, were up by 8 percent at $11.4 billion. Total contract signings were $17.3 billion during the quarter, in which the services division signed 18 deals with value greater than $100 million, and three of which were greater than $1 billion.

Hardware revenues from continuing operations were $9.1 billion, an increase of 12 percent (4 percent at constant currency) from the 2002 fourth quarter. Overall, IBM’s total systems group revenues surged by 18 percent from the prior year’s quarter to $4.9 billion.

The strong performer for the group was IBM’s new mainframe zSeries line, said John Joyce, IBM’s chief financial officer. He said deliveries of the new z990 mainframes were especially strong during the quarter when coupled with the Linux operating system. Storage systems revenue jumped by 14 percent on strength in mid-range tape and DASD FAStT products.

In its software division, IBM’s WebSphere line of middleware and its Tivoli enterprise management suite continued to lead the results of the division. At $4.3 billion for the quarter, software revenues were up by 12 percent (but adjusted for currency exchange, were up by 2 percent at constant currency), compared to the same time last year, IBM said.

Although its middleware lines of WebSphere, DB2, Rational, Tivoli and Lotus products were up by 14 percent within the segment, the Tivoli segment was the strongest performer in the division. IBM said sales of Tivoli software, which helps customers centrally manage networks and storage, were up by 17 percent. Sales of WebSphere lines alone were up 10 percent. Lotus collaboration software sales were up by 2 percent. Revenues from its software testing division with Rational, the software company it acquired in 2003, contributed about 42 percent of the division’s middleware revenues.

Full Year Results

For the year ended December 31, 2003, IBM said net income from continuing operations was $7.6 billion, compared with $5.3 billion for the same period of 2002, which included after-tax charges of $433 million related to the acquisition of PwCC and $1.1 billion associated with 2002 actions.

Diluted earnings per common share from continuing operations was $4.34 compared with $3.07 after the 2002 charges of $.88 per diluted share, officials said, which was an increase of 41 percent.

Full-year revenue grew by 10 percent (3 percent at constant currency) to $89.1 billion.

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