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IBM tops estimates
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July 19, 1999: 7:09 p.m. ET
Computer maker reports profit of $2.4 billion, sales up 16 percent
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NEW YORK (CNNfn) - IBM reported better-than-expected second-quarter profits Monday, aided by a 16 percent surge in revenue and continued strong growth in its services and software units.
The world's largest computer maker said it earned $2.4 billion, or $1.28 a diluted share, in the quarter, up from the $1.5 billion, or 75 cents a share, a year earlier. Excluding one-time items, "Big Blue" earned 91 cents a share in the latest period, beating Wall Street estimates of 88 cents a share.
International Business Machines Corp. (IBM) said revenue rose 16 percent to $21.9 billion.
"All together, it was a pretty impressive report," said Shelby Seyrafi, an analyst with A.G. Edwards. "A lot of people have been modeling around 12 or 13 percent. That's where I was."
IBM easily surpassed that figure by growing revenues in its global-services business by 15 percent to $8.0 billion despite selling nearly all of its Global Network unit to AT&T Corp (T). Revenue growth was driven by a total of $9.5 billion in new sales agreements, including a total of 11 new "mega-deals," or deals valued at more than $100 million, during the quarter.
Hardware revenues climbed 22 percent to $9.4 billion. Personal computer revenues and profits climbed 50 percent and 65 percent respectively, but the company still lost roughly $153 million on its PC business. Some analysts were expecting a profit this quarter.
Likewise, sales of IBM's AS/400 products declined during the quarter.
"Certainly it was a disappointing quarter for us," IBM Chief Financial Officer Douglas L. Maine said of the AS/400 results. "But we absolutely believe the … problems are fixable."
Software revenues climbed 9 percent to $3.1 billion aided by continued strong gains in the company's transaction processing, Universal Database, Lotus Notes and Tivoli systems management products.
Since IBM posted such stagnant growth during the first two quarters of 1998, analysts said the company will have a much harder time posting such strong jumps in revenues and profits during the third and fourth quarters.
Maine likewise advised analysts to maintain their year-end numbers, but hinted any lingering concerns about Y2k fears restricting second-half buying should be factored out of their equations.
"We really saw no significant evidence in the second quarter in changes in customer buying patterns," Maine said. "With each succeeding month, we believe if there is an impact, it is going to be short term in nature."
Maine also said the trend of increasingly stronger service margins should continue, particularly in Europe where IBM continues to develop more efficiencies.
"It's more of an execution issue than anything else," he said.
Shares in the technology giant have shot up since late April, when IBM reported better-than-expected first quarter results and signaled a turnaround in several of its business lines.
On Monday IBM closed at 134-5/8, down 1-5/8 and were unchanged in after-hours trading.
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IBM
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