IBM’s Profit Slides 13% for First Quarter
IBM Corp. on Monday said first-quarter profit fell 13%, in line with diminished estimates, as sales dropped in Asia and sagging personal computer prices ate into earnings.
The world’s largest computer maker earned $1.04 billion, or $1.06 a diluted share, down from $1.2 billion, or $1.16 diluted, in the year-earlier period. IBM warned in January that earnings would fall, and analysts slashed their forecasts to $1.05 a share from $1.36.
IBM’s hardware and software sales were lackluster and, like Compaq Computer Corp. and Intel Corp., revenue was hurt by PC price cuts. These problems have dogged IBM for several quarters, suggesting that Chairman Louis Gerstner needs to do more to sell machines rather than rely on IBM’s services business, where profit margins are slimmer.
Revenue edged up 1.8% to $17.62 billion from $17.31 billion in the year-earlier period. But revenue in Japan fell 8% from year-ago levels. IBM also said that the dollar’s strength cut 12 cents a share from quarterly earnings.
Armonk, N.Y.-based IBM gets more than half its revenue outside North America, and the value of that revenue falls when foreign currencies decline against the dollar.
IBM shares climbed as much as 3.2% to as high as $111.25 in trading after the close of U.S. markets. The stock rose $1.69 to close at $109.63 on the New York Stock Exchange before the earnings report.
While IBM’s services unit is growing faster than the industry and gaining market share, it’s the least profitable of IBM’s top three businesses. Services gross margin, or the percentage of revenue minus product costs, was 21.1% in the first quarter. Gross margin for the hardware business was 28.3% and 74.5% for software.
In its mainstay hardware business, IBM was hurt by price cuts for PCs. Stung by the glut of PCs, IBM’s hardware sales fell 8% to $7.1 billion and also fell from the fourth quarter.
Gerstner called PC price competition “severe” and said IBM expects pricing pressures to continue in the second quarter, as did Compaq when it reported earnings last week.
At a Glance:
* Network Associates Inc. said its first-quarter earnings rose 27%, exceeding estimates, to $41.6 million, or 56 cents a diluted share, compared with profit before a charge of $32.7 million, or 45 cents a share, a year ago. Sales rose 33% to $188.4 million.
* Xircom Inc. said its income from continuing operations declined to $3.3 million, or 14 cents a share, in the fiscal second quarter, from $4.9 million, or 22 cents, a year ago. The Thousand Oaks-based maker of computer products said net sales rose 12% to $64.1 million.
