IBM 2nd-Quarter Results Boost Stock 13%
IBM’s stock shot up 13% Thursday after the company’s second-quarter results alleviated Wall Street’s broader worries about the technology industry.
The profit was less than that of a year ago, but investors expected that because of currency fluctuations and the decline in memory chip prices. Instead, they focused on the revenue strength in most of IBM’s computer lines and particularly its burgeoning services operation.
In addition, IBM Chief Financial Officer Richard Thoman repeated his earlier forecast of stronger results for the last six months of the year.
Chief Executive Louis V. Gerstner Jr. called the second quarter “tough” but said there were many signs that long-term strategies were working. “Simply put, our traditional businesses are continuing to reinvent themselves and our newer businesses are showing great strength,” Gerstner said in a statement.
International Business Machines Corp. earned $1.35 billion, or $2.51 per share, in the three months ended June 30. That’s down from $1.72 billion, or $2.97 per share, in the second quarter of 1995.
Revenue was $18.2 billion, up 4% from $17.5 billion a year ago. If compared on a “constant currency” basis, which would exclude the dollar’s rise against many currencies, particularly the yen over the last year, IBM’s sales grew 9%.
Consensus forecasts by analysts called for a profit of $2.50. IBM stock closed up $11.875 to $103.625 on the New York Stock Exchange. The stock had been trading at less than $100 since July 3.
IBM’s performance gave a lift to other technology stocks, which have been whipsawed during the last three weeks by other quarterly reports or forecasts.
“That’s a big rise in stock and a positive reaction to news in a market that hasn’t been having good reactions to earnings reports,” said Ricky Harrington, a stock analyst at Interstate-Johnson Lane in Charlotte, N.C.
It also helps IBM’s image, which has suffered in recent days because of glitches in one of the computer systems it designed and is running at the Olympics. The system gives results to the media and the difficulties have been broadcast around the world by unhappy reporters.
The topic even came up in Thoman’s meeting with financial analysts. “We are obviously very upset about it because, you know, you don’t like anything not to work,” he said. “From the top level of the company on down, there’s an urgent focus on getting it fixed.”
During the quarter, IBM’s computer, or hardware, sales amounted to $8.6 billion, down 1% from a year ago. However, IBM’s mid-range systems and engineering-level workstations grew strongly and its personal computer business was also better.
IBM’s gross margin was 39.5% in the quarter, down from 43.5% in the second quarter of 1995 and 40.9% in the first quarter of 1996.
* INVESTOR SPOTLIGHT: D6
