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

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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