IBM Earnings Soar on Sales of New Systems
International Business Machines Corp. helped spark Wall Street’s rally Thursday, announcing fourth-quarter profit of nearly $2.5 billion and annual earnings of $6 billion--both the second-highest marks for the computer maker.
Crediting strong sales of its newest workstation and mid-range computer systems, the company said its fourth-quarter profit jumped more than four times from $600 million in 1989, while its full-year earnings increased 56% from $3.8 billion.
Profit comparisons between 1990 and 1989 are skewed, in part, because IBM’s earnings in the fourth quarter of 1989 were depressed by a $2.42-billion charge the company took when it eliminated 10,000 jobs in a cost-cutting move.
Sales were also strong. Revenue in the final quarter of the year was $23.1 billion, up nearly 13% from the year-ago quarter, while full-year revenue was $69 billion, a 10% increase over 1989.
Wall Street greeted the 1990 results robustly. In heavy trading, IBM’s stock closed at $115.75 a share, up $6.625.
Beyond the immediate numbers analysts found even more reason to brighten their outlook for IBM.
The results, several analysts noted, demonstrate that IBM has successfully navigated a potentially difficult transition to a new generation of its most important and expensive computers, the mainframe models. And, perhaps more important, others noted, IBM improved its overall performance at the same time its traditional core business--mainframe computers--generated 15% less revenue than during the prior year’s period.
“This is the real positive news of the earnings story because it shows the company is not as dependent on the mainframe business as it has been,” said John Jones, a computer analyst with Montgomery Securities in San Francisco. “It shows that the company is becoming a much more balanced one.”
As a result, Jones and other analysts said they increased their profit forecasts for 1991 and now expect the company to surpass the $6.5-billion earnings record set in 1984.
Although IBM has traditionally not divulged the composition of total sales, analysts have long maintained that mainframe sales have comprised the largest single portion of revenue and profit alike. However, the company said Thursday, sales in the final quarter of the year of its newer and smaller systems, particularly the AS 400 mid-range computer and the RS 6000 technical workstation, surged.
Analysts said they expect IBM to post strong sales in the final half of this year and throughout 1992 if the global economy does not greatly deteriorate.
IBM attributed its stronger-than-expected results to “the execution of our strategy,” wide-based growth and cost cutting. Despite the showing, analysts said--and IBM confirmed--that there will be further job cuts, all voluntary, this year.
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