IBM Profit Jumps 6% Despite Slow Reaction to Cheaper PCs
IBM on Monday reported a nearly 6% profit increase in the July-September quarter, with another big gain in its services business offsetting weakness in its consumer PC business and the damage done to foreign revenues by the strong dollar.
Strong sales of some of its servers and commercial PCs helped IBM post results that were better than Wall Street had expected.
IBM earned $1.36 billion in the third quarter, or $1.38 per share, on revenue of $18.61 billion. A year earlier, the company earned $1.29 billion, or $1.23 per share, on revenue of $18.06 billion.
IBM’s shares rose $2.06 to close at $97.50 on the New York Stock Exchange in anticipation of strong results. The figures were released after the stock market closed.
The world’s largest computer company said it misjudged the new popularity of low-priced personal computers when it introduced its high-end Aptiva computer and was slow to react as consumers quickly started buying cheaper PCs--some selling for less than $1,000--made by its rivals.
The company in the last three months introduced a more moderately priced version of the machine in the U.S., and interim Chief Financial Officer Lawrence R. Ricciardi said the issue is now whether IBM can make the cheaper machines fast enough to keep up with demand.
“This product is doing very well in every respect; now the issue is lack of supply,” he said.
As had been expected, Ricciardi said the company is folding the manufacturing, development and order-filling of the consumer PC business into its more successful commercial desktop business. Any job losses will be included in IBM’s voluntary buyout offer the company is making to many of its 241,000 employees.
Armonk, N.Y.-based IBM priced the Aptiva at nearly $3,000 and clearly missed the shift to cheaper machines. Industry figures have estimated that machines costing less than $1,000 now make up about 40% of retail computer sales, up from 9% in February.
At a Glance:
Eli Lilly & Co. said third-quarter earnings rose 29%, beating estimates, as strong sales of new drugs such as the anti-psychotic Zyprexa helped make up for a decline in sales of Lilly’s antibiotics. The Indianapolis-based drug maker said profit from operations rose to $449 million, or 41 cents a share, from $347.4 million, or 32 cents a share, in the year-earlier period, just topping Wall Street’s estimate. The 1996 results are adjusted to reflect a stock split. While sales for its antibiotics fell, Lilly had success with spurring growth of its leading drug, the antidepressant Prozac, with sales rising 11% from the year-earlier period to $705 million.
Nabisco Holdings Corp. said third-quarter net income rose 31% from results depressed by a one-time restructuring charge a year ago. Sales slipped, but earnings were up in snack food categories. Net income rose to $92 million, or 34 cents a share, compared with $70 million, or 26 cents, a year earlier.
Hasbro Inc. said third-quarter earnings rose 9.8%, driven by sales of its CD-ROM games and toys based on the “Star Wars,” “Jurassic Park” and “Batman” movies. The toy maker reported net income of $77.4 million, or 60 cents a share, up from $70.5 million, or 54 cents, a year ago.
BellSouth Corp. said third-quarter earnings rose 12% before gains to $705 million, or 71 cents a share, from $631 million, or 63 cents, a year earlier.
McAfee Associates Inc. reported third-quarter net income of $24.5 million, or 45 cents per share, compared with $12.9 million, or 24 cents, a year ago.
T. Rowe Price Associates Inc. reported a 59% increase in third-quarter earnings to a record $41.3 million, or 64 cents a share, from $25.9 million, or 42 cents, in the year-earlier period.
Southern Co. said third-quarter profit plunged 20% with a one-time charge of $119 million for a tax assessment in Britain. Net income fell to $375 million, or 55 cents a share, from $468 million, or 69 cents, a year ago.
Ashland Inc. said its fiscal fourth-quarter profit rose 85% to $76 million, or $1 a share, from $41 million, or 55 cents, a year ago.
Crown Cork & Seal Co. said third-quarter profit rose 26% before a one-time charge to $120.1 million, or 90 cents a share, from $95.5 million, or 72 cents, a year ago.
