IBM Posts Strong 1st-Quarter Results
Citing an overall strong demand for its computer products, International Business Machines said Monday that profit in the first quarter jumped 9% to $1.04 billion while revenue rose 11% to $14.2 billion.
Although the news pleasantly surprised some quarters of Wall Street and sparked a modest rally in the stock market, several analysts cautioned that IBM’s performance was not as strong as the comparison to the first three months of 1989 would seem to suggest. The year-ago quarter was a decidedly poor one for the company, these analysts noted.
They added that they do not expect IBM to sustain the same pace of sales and profit growth for the remainder of the year. And they cautioned against drawing any conclusions for the rest of the electronics industry, which has been facing tough times in the past year.
“IBM still has fundamental problems,” said Steven Cohen, an analyst with SoundView Financial in Stamford, Conn. “This quarter is nice to have, but I’m not calling it a turnaround. . . . And IBM isn’t any bellwether for the rest of the technology industry.”
Since hitting an annual profit peak of nearly $6.6 billion in 1984, IBM has been struggling to fight off a variety of domestic and international competitors challenging its wide-reaching computer operations. Over the last three years, the company has eliminated 6,500 jobs, induced nearly 20,000 workers to take early retirement and transferred about 20,000 more workers from desk jobs to the sales force to trim costs and generate more business.
Still, the job of overhauling and refocusing the world’s largest computer maker has proven vexing. Last year, the company jolted Wall Street twice with lower-than-expected earnings, in the first quarter and again in the third. In response, analysts have lowered their sights for the company and were generally unprepared for Monday’s announcement.
But William Easterbrook, an independent analyst who has been tracking IBM for years, said Wall Street should have realized that the company’s poor performance in the first quarter last year would allow sales and earnings for the same period this year to stand out disproportionately. In the year-ago quarter, IBM earned $950 million on sales of $12.7 billion.
Easterbrook noted that the second quarter of 1989 was exceptionally strong, and that the company is unlikely to exceed it by the same percentage posted in the first quarter.
“But that doesn’t mean the company suddenly isn’t doing as well. These are just quarterly numbers,” Easterbrook said. “Overall I believe the turnaround strategy is sound. It’s just that there is more work to do.”
Still, investors cheered the interim results. IBM rose $3.75 per share to close at $110.875 on the New York Stock Exchange Monday, where it was the most actively traded issue. And IBM, which is included in the Dow Jones industrial average, was widely credited for sparking Monday’s 11.26-point rise in that index.
Analysts said the first quarter’s sales and profit were aided in part by strong sales of the company’s top-of-the-line mainframe model, its most profitable business segment. Also contributing were growing sales of its new mainframe data storage disks and overall lower expenses due to employee reductions.
