IBM Profit Rise Disappoints Wall Street
International Business Machines on Monday announced a nearly 27% jump in third-quarter earnings, but Wall Street--clearly expecting an even better performance--sent IBM shares lower.
While IBM stock closed at $99.25 per share, down just $1 in New York Stock Exchange trading, at times during the hectic trading day it was trading as low as $96.25. Other high-technology stocks, often affected by the Wall Street fortunes of the world’s largest computer company, were not dragged down by investors’ reactions to IBM’s earnings.
“Wall Street and its bears clearly overreacted on IBM,” said John Jones, a technology analyst at Montgomery Securities in San Francisco. “These results were nothing to be disappointed about.”
Profit for the quarter totaled $1.1 billion, compared to $900 million in the year-ago period. Revenue totaled $15.3 billion, up 6.8% from $14.3 billion.
For the first nine months of the year, profit totaled $3.6 billion, up 12.5% from $3.2 billion. Revenue for the period totaled $46 billion, up 8.8% from $42.2 billion.
Analysts said IBM benefited from strong sales of computer software, up 23% from the prior year, and an aggressive leasing program that generated 26% more revenue than the prior year.
IBM said the most recent quarterly results were also aided by the weak U.S. dollar, which increased the value of results from its foreign operations. Although the company declined to quantify the effect of the currency translations, some analysts said it could account for as much as $170 million of the quarter’s profits.
IBM said it expects its operations to remain strong for the remainder of the year, and it stuck by earlier projections that sales would rise between 7% and 10% in the final months of the year if the world economy does not shatter.
“Assuming no further deterioration in the world’s economies, we continue to expect substantially improved financial performance for 1990,” IBM Chairman John F. Akers said in the firm’s financial statement.
Still, some analysts said they wonder whether IBM can achieve these goals given the slowdown of sales of its personal computers and its ongoing transition to a new generation of mainframe computers, the 390 series.
Overall, computer sales dropped 1.5% in the third quarter, a slip the company attributed to a slowdown of sales of its PS/2 models in Europe and deep discounting of the products in the United States.
At the same time, the introduction five weeks ago of the 390 series led to an increase in mainframe leasing while customers waited for the new models to be ready.
Some analysts, including Stephen Cohen of Soundview Financial, say the product transition in mainframes--IBM’s largest and strategically most important computers--could last well into 1991, depressing sales and profits until late next year.
However, company officials say that the transition is nearly complete and that customers have responded well to the new systems. A spokesman said the company had more orders for its new mainframe models in the third quarter than it could satisfy.
