IBM’s Earnings Rise 12% on Services, Software
IBM Corp., the world’s largest computer maker, said its profit grew 12% in the latest quarter on strong growth in services and software, reflecting an ongoing shift away from hardware as its main source of business.
IBM’s earnings grew slightly more than Wall Street forecasts to $2.35 billion, or $2.47 a share, in the three months ended Dec. 31, up from $2.09 billion, or $2.11, in the year-ago quarter.
“We showed particular strength in services and software--two areas of critical importance as our customers increasingly embrace e-business and network computing,” Chairman Louis Gerstner said.
The improvement came despite weakness from the economic slump in Asia and parts of Latin America and sagging computer chip prices. IBM also overcame a decline in revenue from computers, its biggest business, which slipped in part due to price reductions on new mainframe machines.
IBM’s overall revenue rose 6% to $25.13 billion, falling short of some analysts’ expectations. The fourth-quarter report beat the $2.45-per-share forecast of analysts surveyed by First Call Corp.
John Jones of Salomon Smith Barney said that while IBM’s bottom line came in roughly as expected, the report fell short of his forecast for a 9% sales increase.
Revenue jumped 20% at IBM’s services business, which helps companies run their computer systems. Software revenue grew 9.4%, helped by demand for IBM’s Tivoli management software, databases and Lotus Notes.
Hardware sales slipped 1.5% despite strong acceptance of IBM’s new mainframe computer, introduced in last year’s third quarter, which was priced lower than the product it replaced.
Armonk, N.Y.-based IBM released its results after the close of financial markets. Ahead of the report, IBM shares gained $2.50 to close at $197 on the NYSE.
Separately, Gateway Inc., the second-largest direct seller of personal computers, said its quarterly profit climbed 39% to $129.1 million, or 81 cents a share, as unit shipments soared and margins expanded. The results beat expectations by 3 cents. Gateway’s sales were up 17% to $2.31 billion.
