IBM, Microsoft Earnings Beat Analyst Estimates

Computer industry titans Microsoft Corp. and IBM Corp. on Tuesday reported better-than-expected earnings for the latest quarter.

IBM, the world’s largest computer maker, issued its earnings with a caution, however, that a slowing global economy might hinder sales growth in the fourth quarter and 1999.

Microsoft, the No. 1 software maker, said its fiscal first-quarter operating profit jumped 58% to $1.52 billion, or 56 cents a share, well above the average Wall Street estimate of 49 cents, as revenue climbed 26% to $3.95 billion. Microsoft earned $959 million, or 36 cents, a year ago.

IBM’s profit rose 10% in the third quarter to $1.49 billion, or $1.56 a share, 3 cents higher than analyst estimates of $1.53 a share. IBM earned $1.35 billion, or $1.35 a share, a year ago. Revenue rose 8% to $20.1 billion, paced by surging sales at its services business of installing and maintaining computer systems. The company cleared out a glut of personal computers and began selling its G5 mainframe, which boosted third-quarter hardware sales.

“Services is the miracle engine,” said analyst Stephen Dube of Wasserstein Perella Securities. “The revenue growth is fairly impressive.”

Still, IBM was guarded about next year, as concern about Asian and Latin American economies looms and spending by companies on technology slows. IBM told analysts on a conference call not to raise estimates for the fourth quarter or ’99.

Microsoft credited Windows 98, unveiled at the end of June, and its Windows NT corporate operating system as the two main drivers of its surprising results.

“It looks pretty impressive. It’s another solid quarter,” said Richard Scocozza, an analyst at Bear Stearns & Co., who rates the stock “buy.”

Microsoft told analysts and investors on a conference call that the company expects its fiscal second-quarter earnings to be up at least 35%, with revenue up 20%.

The company said it is unlikely its fiscal 1999 revenue will reach fiscal 1998 levels. Its last two quarters of fiscal 1999 will depend on the company’s release of SQL 7, the new version of its database software.

At a Glance

Other computer-related earnings, excluding one-time gains and charges unless noted:

* Egghead.com Inc. said its fiscal second-quarter loss widened to $7.2 million, or 30 cents a share, from $4.9 million, or 24 cents, a year earlier, as it closed 80 stores. Sales plunged 44% to $35.1 million, which included results from its closed stores. Sales on its Internet sites jumped 73% to $35.1 million.

* Computer Associates International Inc. said its fiscal second-quarter profit rose 8.1% to $293.9 million, or 52 cents a share, beating the average Wall Street estimate of 48 cents. Sales edged up 8.4% to $1.22 billion. The maker of software that runs PC networks and mainframes has lost more than a third of its market value since July 21, when it warned that sales and earnings growth would slow in part because Asia’s slump is causing corporate customers to delay purchases.

* Internet service provider PSINet Inc. reported an operating loss of 78 cents a share in the third quarter, less than the 82 cent loss analysts expected, as sales climbed 111% to $67.6 million. PSINet said its net loss, including a charge of $15.9 million, or 31 cents a share widened to $50.6 million, or 98 cents per share, versus a loss of $10.7 million, or 26 cents, a year ago.

* Texas Instruments Inc., the biggest maker of semiconductors for cellular phones, said third-quarter profit fell a less-than-expected 31% to $164 million, or 41 cents a share, as it stemmed losses in its memory-chip business. Analysts were expecting 28 cents. Sales fell 15% to $2.11 billion.