- NEW YORK (Reuters) - International
Business Machines Corp. IBM.N on Wednesday said it eked out a second-quarter
profit of just a few pennies a share as the world's largest computer maker
took a $1.4 billion charge to exit money-losing businesses and cut jobs.
-
- But even without the big charge, earnings at IBM, which
sells everything from computer software to microchips to computer services,
fell sharply as corporations concerned about their own bottom lines cut
back on technology spending.
-
- The stock initially rose in after-hours trade, and then
traded near flat, as investors were relieved that the earnings appeared
to be in line with expectations and contained none of the bombshells that
have rocked the technology sector.
-
- But the Armonk, New York-based company's lauded services
business, which has become its biggest revenue line, declined for the third
quarter in a row as companies both pulled back on existing deals and failed
to sign new ones.
-
- "It's almost the kind of situation that as Global
Services goes, so goes IBM, and that's kind of how they've restructured
the company. That is the long-term driver of the stock," said Marty
Shagrin, an analyst at Victory Capital who found no major surprises in
the quarterly report.
-
- IBM's stock has fallen more than 40 percent so far this
year as investors have worried about how the industry giant will turn its
stagnant revenue growth around and amid concerns about a lack of financial
disclosure.
-
- Chief Executive Sam Palmisano, who took over for Louis
Gerstner on March 1, called it one of the most difficult markets IBM had
seen in decades but said he remained confident that the company would gain
or hold share in key areas.
-
- IBM fared well, given the woes in the technology sector,
said Sunil Reddy, portfolio manager at Fifth Third Bank in Cincinnati,
Ohio, which owns IBM shares. "This is one of the most difficult IT
spending environments and IBM seems to have come through," Reddy said.
-
- IBM Chief Financial Officer John Joyce said the declines
in revenue aren't as steep as they were in the past. "Going into the
third quarter of this year ... we're not sliding like we were last year,"
Joyce said.
-
- He reined in expectations for 2002 only slightly, saying
the company expects earnings, excluding its money-losing hard drive business
and the charges, to be around $4 per share. That's what analysts are currently
expecting, without factoring in the sale of that business, he said.
-
- The company, whose results are a bellwether for the influential
technology industry, announced plans in June to sell most of its hard-disk
drive assets to Hitachi Ltd. for $2.05 billion.
-
- IBM said it earned $56 million, or 3 cents per share
in the second quarter, down from $2.04 billion, or $1.15 per share, a year
earlier. That includes an after-tax charge of $1.4 billion, or 81 cents
per share. IBM said it earned 84 cents per share excluding the charges.
-
- SERVICES REVENUE
-
- IBM said its second-quarter revenue was $20 billion,
including $379 million from its hard-disk drive business. Excluding the
hard-disk drive business, the company said it booked $19.65 billion in
revenue, down from $20.8 billion.
-
- Revenue in its closely watched services business fell
1 percent to $8.7 billion from $8.74 billion a year earlier.
-
- Joyce said IBM failed to sign three big services contracts
it had hoped for this quarter, creating a shortfall of several billion
dollars. He lowered his 2002 revenue estimate for the division, saying
he expects modest revenue growth in the second half of this year compared
with previous expectations for double-digit growth in the fourth quarter.
-
- "Once the economy turns around, their long-term
signings might increase rapidly, but it still says that their long-term
revenue prospects are down at least until the economy improves," said
Tom Bittman, analyst at technology research firm Gartner Inc.
-
- IBM's hardware business continued to decline, with revenue
off 16 percent to $6.67 billion from $7.9 billion, excluding the hard-disk
drive business. Software revenue, however, rose 8 percent to $3.27 billion
from $3.04 billion a year earlier.
-
- IBM in June said it would take a pretax charge of $2
billion to $2.5 billion, primarily in the second quarter, to cover job
cuts, a restructuring of its microelectronics business and the sale of
its hard-disk drive operations.
-
- IBM upped the charge's total on Wednesday, saying that
as it continues negotiating with Hitachi on the sale of the disk drive
business it may take more write-offs this year that push that range up
to $2.5 billion to $3 billion.
-
- IBM shares fell more than 41 percent this year while
the broader American Stock Exchange Computer Hardware Index has dropped
28 percent. Shares on Wednesday rose $1.68, or 2.4 percent, to $70.69 while
the hardware index fell 2.5 percent.
|