IBM Profit Report Stirs Optimism : Earnings: Upbeat first-quarter results indicate the computer giant has stemmed its dramatic slide. Some see it as a sign that a broader U.S. economic recovery is underway.
International Business Machines Corp. reported stronger-than-expected first-quarter profits Tuesday, spurring a mild rally in IBM shares and leading some analysts to suggest that the worst of the worldwide computer slump might be over.
The upbeat earnings announcement follows more than a year of disastrous financial news from the world’s largest computer company and indicates that IBM has at least stemmed--if not reversed--a dramatic slide in sales and profits.
IBM said net income for the quarter was $594 million, or $1.04 a share, up 7% from the $556 million, or $.97 a share, registered for ongoing operations in last year’s first quarter. Sales were up 3.3%, from $13.6 billion to $14 billion.
Although the earnings remained only a fraction of what they were during IBM’s glory years in the late 1980s, they exceeded Wall Street’s expectations. IBM shares closed up $0.75 at $88.25 after trading as high as $89.75 on the New York Stock Exchange.
“We’re pleased with these results and believe we’re on track toward achieving our financial results for the year,” IBM Chairman John F. Akers said in a statement.
Analysts attributed much of the profit improvement to a rigorous cost-cutting program. IBM eliminated 29,000 jobs last year through a combination of attrition, early retirement incentives and increasingly stringent review procedures that stop just short of outright layoffs.
The company, which had 344,000 employees at the end of 1991, intends to cut another 15,000 to 20,000 jobs this year. A spokesman said Tuesday that the final number would be at the high end of that range.
“They’ve done an absolutely outstanding job on the cost side,” said Peter Labe of Labe & Co. “This is a good-looking (earnings) report. It should dispel excessive fears.”
Analysts were also optimistic about the fact that IBM’s U.S. revenue increased by nearly 10%. That could be an indication that the industrywide sales slump--and perhaps even the broader economic recession that has helped to produce it--is nearing an end.
“In the U.S., things are turning up,” said Curt Rohrman of First Boston. His own firm’s surveys, he said, show that corporate computer buyers are returning to the market and that an economic recovery is underway.
Many investors apparently share Rohrman’s optimism. A number of computer stocks staged major rallies Tuesday, with Apple rising $2.25 to $58.75, Hewlett-Packard jumping $3.125 to $79.875, and Cray Research adding $1.75 to $39.75.
Still, these stocks were the same ones that fell dramatically last week when Digital Equipment Corp., in a dismal earnings report, said that it saw no signs of an upturn in the economy.
And even if the U.S. economy begins to improve, that may be offset by a continuing decline in Europe and other overseas markets, which account for about half the sales of most U.S. computer companies.
In another discouraging sign, IBM said that hardware revenue decreased in the first quarter, though they would have been flat if the sales of a printer division that was spun off into a separate company were included. Software and service revenue was up sharply, but many analysts regard hardware sales as the key to long-term strength.
It remains unclear whether IBM’s much-ballyhooed effort to decentralize the company and give real operating authority to semi-autonomous divisions is having any impact on the bottom line.
