IBM Profit Up, but Wall Street Asks: So What?

SAN FRANCISCO —  IBM on Tuesday broke a string of five quarterly profit declines by reporting a 12.2% gain in third-quarter net income to $1.21 billion, but the results failed to reverse negative sentiment about the company on Wall Street.

IBM’s stock, which has skidded since late August when it hit a record high of $175.875 a share, fell Tuesday despite a 36.72-point gain in the Dow Jones industrial average. IBM closed at $148.75, down 75 cents for the day.

IBM’s third-quarter total revenue climbed 6.9% from a year earlier to $12.73 billion, and sales increased an even stronger 9.2% to $8.43 billion.

The lukewarm response from investors came despite a statement by John F. Akers, chairman and chief executive, that “IBM’s efforts to become more competitive are taking hold.” He added: “We continue to make steady progress in achieving the objectives we have set for ourselves.”

‘Favorable Trends’

The IBM earnings were at the low end of analysts’ estimates for the company. Moreover, several analysts noted that an abnormally low tax rate during the period artificially boosted IBM’s reported profit. The gain on IBM’s sale of Intel stock also buoyed results.

But John Jones, an analyst with San Francisco’s Montgomery Securities, was more sanguine. “There are some very favorable trends in evidence,” Jones said. “For the first time in seven quarters, revenue growth did not trail expense growth.” He said IBM’s early retirement program was holding down expenses.

Jones also said the 9.2% increase in sales indicates consumer acceptance of new models of IBM personal computers, minicomputers and mainframes. “The higher volume will help IBM use up excess plant and equipment,” he said.

For the first nine months of 1987, net income fell 6.7% to $3.17 billion. Revenue climbed 5.5% to $36.2 billion.

IBM said the decline of the dollar this year, by increasing the value of overseas profit and sales, boosted nine-month revenue by more than $2 billion and net income by about $295 million.