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Tuesday, July 19, 2005 9:02:24 AM
IBM profit rises, shares up nearly 5 pct
IBM profit rises, shares up nearly 5 pct
Mon Jul 18, 2005 10:34 PM ET
By Eric Auchard
SAN FRANCISCO (Reuters) - IBM (IBM.N: Quote, Profile, Research), the world's largest computer company, on Monday posted better-than-expected quarterly earnings after a rebound in its services and software businesses, and its shares rose nearly 5 percent.
Second-quarter earnings, excluding the effects of a job cut plan, the sale of its PC business and a legal settlement with Microsoft Corp., climbed about 5 percent, and results in most of IBM's businesses beat investor expectations.
Analysts said the report marked a rapid turnaround from the earnings shortfall that IBM had posted in the first quarter, which called into question the health of global technology spending generally and led to a sharp drop in IBM's stock.
"IBM returned to form in this quarter," Chairman and Chief Executive Sam Palmisano said in a statement.
Chief Financial Officer Mark Loughridge told analysts after the report that Wall Street expectations for the second half "remain reasonable." Analysts, on average, are looking for third-quarter profits, excluding one-time items, to decline 4 percent and for fourth-quarter profits to grow by 2 percent.
Excluding charges and gains, IBM's second-quarter earnings rose to $1.82 billion, or $1.12 per diluted share, from $1.74 billion, or $1.01 per share, which was restated to include the effect of accounting for employee stock option expenses.
Revenue for International Business Machines Corp., which is based in Armonk, New York, fell 4 percent to $22.3 billion. The results include just one month of sales from its PC business, which it sold to China's Lenovo Group Ltd. (0992.HK: Quote, Profile, Research) in May. Excluding the sold-off PC business, sales rose 6 percent.
Analysts forecasts ranged from $21.61 billion -- a drop of 6.6 percent -- to $24.83 billion, or growth of 7.25 percent, according to Reuters Estimates.
The Global Services unit, accounting for roughly half of IBM's total revenue, showed solid growth in revenue and a surge in signings of new contracts. Services revenue rose 6 percent to $12.0 billion. IBM signed services deals worth $14.6 billion, up from $10 billion in the first quarter.
"Clearly things have rebounded," Pacific Crest Securities analyst Richard Petersen said, adding that he expected several analysts to upgrade their ratings on the stock as a result. "I think that things have done a little better than rebounded."
Still, Petersen, cautioned that two-thirds of the new services deals signed in second-quarter were the sort of large, multi-year, lower-margin deals that IBM has been seeking to de-emphasize in favor of short-term deals with faster payback. Signings of these big outsourcing contracts surged 80 percent.
GAINS OFFSET CHARGES
The latest quarter included a charge of 72 cents per share to cover the cost of 14,500 job cuts, 70 percent of which came in Western Europe. The workforce cuts represent a little more than 4 percent of the 329,000 staff employed by IBM last year. IBM had previously said it expected to cut 10,000-13,000 jobs.
This charge was offset by gains of $1.1 billion, or 45 cents a share, on the sale of its PC business to Lenovo and 29 cents a share from a $775 million antitrust settlement it reached with Microsoft Corp. (MSFT.O: Quote, Profile, Research) in June.
Including charges and gains, second-quarter net earnings amounted to $1.14 a share.
Wall Street analysts had forecast a net profit, on average, of $1.13 per share, and operating income, excluding one-time items, of $1.04 a share, according to Reuters Estimates data.
"It was a very solid quarter more or less across the board," said Chris Whitmore, an analyst at Deutsche Bank.
Computer hardware revenue, including just one month of PC revenue, fell 25 percent to $5.6 billion. The year-ago quarter included three months of revenue from PCs. Software, a key profit driver, rose 10 percent to $3.8 billion.
Sales of mainframe computers, the mainstay of IBM product sales, fell 24 percent. IBM is set to introduce a new line of mainframes later this year, which is expected to revive growth as corporate customers upgrade older machines.
Shares of IBM jumped 4.7 percent to $85.62 in after-hours trading, following the company's quarterly report, up from their close at $81.81 on the New York Stock Exchange.
Prior to the report, IBM ranked as the worst-performing component of the Dow Jones index in the year-to-date.
But growing confidence about IBM's second-half results together with recent ratings upgrades, have helped lift IBM's valuation in recent weeks, relative to broader market indexes.
The stock trades at 15.8 times 2006 year's earnings estimates, slightly above the 14.9 times of both the S&P 500 index and Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research), IBM's closest peer.
View of IBM headquarters at la Defense in Paris, is seen in this May 6, 2005 file photo. IBM, the world's largest computer company, on Monday posted a rise in operating income, excluding the effects of a job cut plan, the sale of its PC business and a legal settlement with Microsoft Corp. Shares of IBM jumped 3 percent to $84.49 after the report. Photo by Philippe Wojazer/Reuters
LINK: http://today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-07-19T023409Z_01_N...
IBM profit rises, shares up nearly 5 pct
Mon Jul 18, 2005 10:34 PM ET
By Eric Auchard
SAN FRANCISCO (Reuters) - IBM (IBM.N: Quote, Profile, Research), the world's largest computer company, on Monday posted better-than-expected quarterly earnings after a rebound in its services and software businesses, and its shares rose nearly 5 percent.
Second-quarter earnings, excluding the effects of a job cut plan, the sale of its PC business and a legal settlement with Microsoft Corp., climbed about 5 percent, and results in most of IBM's businesses beat investor expectations.
Analysts said the report marked a rapid turnaround from the earnings shortfall that IBM had posted in the first quarter, which called into question the health of global technology spending generally and led to a sharp drop in IBM's stock.
"IBM returned to form in this quarter," Chairman and Chief Executive Sam Palmisano said in a statement.
Chief Financial Officer Mark Loughridge told analysts after the report that Wall Street expectations for the second half "remain reasonable." Analysts, on average, are looking for third-quarter profits, excluding one-time items, to decline 4 percent and for fourth-quarter profits to grow by 2 percent.
Excluding charges and gains, IBM's second-quarter earnings rose to $1.82 billion, or $1.12 per diluted share, from $1.74 billion, or $1.01 per share, which was restated to include the effect of accounting for employee stock option expenses.
Revenue for International Business Machines Corp., which is based in Armonk, New York, fell 4 percent to $22.3 billion. The results include just one month of sales from its PC business, which it sold to China's Lenovo Group Ltd. (0992.HK: Quote, Profile, Research) in May. Excluding the sold-off PC business, sales rose 6 percent.
Analysts forecasts ranged from $21.61 billion -- a drop of 6.6 percent -- to $24.83 billion, or growth of 7.25 percent, according to Reuters Estimates.
The Global Services unit, accounting for roughly half of IBM's total revenue, showed solid growth in revenue and a surge in signings of new contracts. Services revenue rose 6 percent to $12.0 billion. IBM signed services deals worth $14.6 billion, up from $10 billion in the first quarter.
"Clearly things have rebounded," Pacific Crest Securities analyst Richard Petersen said, adding that he expected several analysts to upgrade their ratings on the stock as a result. "I think that things have done a little better than rebounded."
Still, Petersen, cautioned that two-thirds of the new services deals signed in second-quarter were the sort of large, multi-year, lower-margin deals that IBM has been seeking to de-emphasize in favor of short-term deals with faster payback. Signings of these big outsourcing contracts surged 80 percent.
GAINS OFFSET CHARGES
The latest quarter included a charge of 72 cents per share to cover the cost of 14,500 job cuts, 70 percent of which came in Western Europe. The workforce cuts represent a little more than 4 percent of the 329,000 staff employed by IBM last year. IBM had previously said it expected to cut 10,000-13,000 jobs.
This charge was offset by gains of $1.1 billion, or 45 cents a share, on the sale of its PC business to Lenovo and 29 cents a share from a $775 million antitrust settlement it reached with Microsoft Corp. (MSFT.O: Quote, Profile, Research) in June.
Including charges and gains, second-quarter net earnings amounted to $1.14 a share.
Wall Street analysts had forecast a net profit, on average, of $1.13 per share, and operating income, excluding one-time items, of $1.04 a share, according to Reuters Estimates data.
"It was a very solid quarter more or less across the board," said Chris Whitmore, an analyst at Deutsche Bank.
Computer hardware revenue, including just one month of PC revenue, fell 25 percent to $5.6 billion. The year-ago quarter included three months of revenue from PCs. Software, a key profit driver, rose 10 percent to $3.8 billion.
Sales of mainframe computers, the mainstay of IBM product sales, fell 24 percent. IBM is set to introduce a new line of mainframes later this year, which is expected to revive growth as corporate customers upgrade older machines.
Shares of IBM jumped 4.7 percent to $85.62 in after-hours trading, following the company's quarterly report, up from their close at $81.81 on the New York Stock Exchange.
Prior to the report, IBM ranked as the worst-performing component of the Dow Jones index in the year-to-date.
But growing confidence about IBM's second-half results together with recent ratings upgrades, have helped lift IBM's valuation in recent weeks, relative to broader market indexes.
The stock trades at 15.8 times 2006 year's earnings estimates, slightly above the 14.9 times of both the S&P 500 index and Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research), IBM's closest peer.
View of IBM headquarters at la Defense in Paris, is seen in this May 6, 2005 file photo. IBM, the world's largest computer company, on Monday posted a rise in operating income, excluding the effects of a job cut plan, the sale of its PC business and a legal settlement with Microsoft Corp. Shares of IBM jumped 3 percent to $84.49 after the report. Photo by Philippe Wojazer/Reuters
LINK: http://today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-07-19T023409Z_01_N...
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