NEW YORK (CNN/Money) -
IBM's earnings grew 5 percent in the third quarter, in line with Wall Street forecasts, but sales came in a bit lower than analysts had expected for the world's largest computer maker.
Armonk, N.Y.-based IBM said Wednesday that net income rose to $1.8 billion, or $1.02 a share, in the quarter, from $1.7 billion, or 99 cents a share, a year earlier.
Sales rose 9 percent to $21.5 billion, below Wall Street's consensus estimate of $21.9 billion, according to First Call. Excluding currency factors, IBM said sales growth would have been just 4 percent in the quarter. IBM, like other multinationals, has benefited from a weaker dollar.
IBM (IBM: Research, Estimates) stock fell 3 percent in after-hours trading, according to Island ECN, after inching higher during the regular session.
10,000 new jobs
But International Business Machines Corp. CEO Sam Palmisano expressed some optimism about the outlook for next year, saying that IBM would look to add up to 10,000 new jobs in 2004.
"We are beginning to see signs that the economy has stabilized. As we look to 2004, more customers are expected to increase their investments in information technology," Palmisano said in a statement. But he added that "it is too early to say that a rebound is at hand."
Like Intel, which reported earnings on Tuesday, IBM showed stronger revenue growth outside of the U.S., where companies continue to show few signs of increasing their spending on technology. Sales in IBM's Americas division increased just 4 percent from last year compared with an 11 percent gain in Asia-Pacific and a 19 percent increase in European sales.
During a conference call with analysts, IBM CFO John Joyce said that larger businesses remained cautious with their capital spending plans but that small and mid-sized businesses were starting to show signs of improvement. Sales from small and medium business increased 16 percent from a year ago, Joyce said.
Joyce added that the company felt the current consensus estimates for fourth-quarter sales and earnings are reasonable. Analysts expect IBM to post earnings of $1.51 per share, a 13 percent increase from a year ago. Sales are forecast at $25 billion, a 5.5 percent rise from the same period last year.
Bright spots: services and software
Sales in IBM's biggest division, global services, jumped 17 percent from a year earlier, due in large part to the acquisition of PricewaterhouseCoopers' consulting division earlier this year.
Another bright spot was software. IBM posted an 11 percent increase in software sales.
IBM has been stepping up its presence in these two areas since they are far more profitable than the business of selling computers and semiconductors.
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To that end, IBM reported pretax operating profit margins of 22 percent for the software business and 11 percent for the services division, while Big Blue's PC and chip divisions lost money in the quarter.
Total hardware sales fell 1 percent in the quarter although sales of servers and storage systems grew 6 percent.
John Rutledge, manager of the Evergreen Technology fund, which owns IBM shares, said that the company is having a tough time generating sales growth overall, with favorable currency fluctuations and the PwC acquisition accounting for most of the revenue growth.
Still, Rutledge said he is pleased with the progress in IBM's services division. The company reported new contract signings of $15.4 billion in the third quarter, in line with his estimates.
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