International Business Machines Corp. said Friday that its third-quarter profit rose 3.2% to $1.25 billion and gave the first indication that its U.S. sales were on the mend.
The earnings were in line with Wall Street forecasts. Revenue rose 5.3% to $13.40 billion, slightly higher than expected.
Industry analysts said the gains were driven mainly by strong sales of its mainframe computers and PS/2 personal computers. The company’s mid-range systems continued to struggle.
While satisfied with the results, analysts were especially heartened by a pickup in product orders in the United States, the first sign that after several years of stagnation, IBM’s domestic business was headed for a recovery. International sales remained strong.
IBM’s stock gained on the news, closing up $1.125 to $119.75 in New York Stock Exchange trading.
It marked the fifth straight quarter of higher operating earnings after a two-year slump that forced the Armonk, N.Y.-based computer giant to slash costs, consolidate manufacturing plants and retrain thousands of employees for sales positions.
In the year-ago period, IBM earned $1.21 billion on revenue of $12.73 billion.
IBM had led Wall Street to expect a difficult third quarter as the company made the transition to the new ES/3090-S mainframes and AS/400 minicomputers, which began shipping during the period. Many customers delayed purchases until they could get a look at the new computers.
But it was the surge in orders, a guidepost for future sales, that confirmed computer analysts’ forecasts that IBM was on track for a big jump in fourth-quarter earnings.
“We are looking for a huge fourth quarter,” said Ulric Weil of Washington-based Weil & Associates. “Everything IBM said (today) about demand supports that expectation,” he said.
“Orders were spectacular,” said Dean Witter Reynolds Inc. analyst Jay Stevens, who estimated that worldwide orders soared 30% to 40% in the third quarter. U.S. orders rose about 10%, he said.
Analysts said that while orders should accelerate into next year, the heady pace of growth in the past quarter was unsustainable.
“Let’s remember that orders were anemic in the first half,” said Michael Geran of Nikko Securities Co. in New York.
The good news for IBM could spell trouble for its competitors.
“IBM is getting good at the expense of somebody else,” said Stephen Cohen of Stamford, Conn.-based Soundview Financial Group.
For example, the AS/400 minicomputers may take sales away from rivals like Digital Equipment Corp. and Hewlett-Packard Co.