AOL Beats the Estimates; Profit Slides 11% at IBM
and Bloomberg News
America Online Inc., the nation’s largest Internet service provider, said its fiscal second-quarter profit beat analysts’ forecasts as holiday advertising surged and it gained 1.8 million subscribers.
Computer giant IBM Corp., meanwhile, said profit fell 11% and revenue declined 4% in the fourth quarter as sales of business computers were dragged down by uncertainty over the Y2K bug.
AOL earned $271 million, or 10 cents a share, in the quarter ended Dec. 31, compared with a pro forma profit of $115 million, or 5 cents, a year ago.
The latest results are stated as if AOL’s $9.8-billion purchase of Netscape last year had taken place. Revenue rose 41% to $1.62 billion.
Analysts were expecting on average 8 cents a share from AOL, according to First Call/Thomson Financial. Some forecasts posted on investor Web sites were as high as 11 cents a share.
AOL, which agreed last week to buy Time Warner Inc., benefited from an increase in holiday advertising as retailers paid more to sell their wares over the service. The company’s more than 20 million subscribers spent $2.5 billion during the holiday season, more than double the $1.2 billion spent in 1998. AOL gains about half of all first-time Internet users, far more than its rivals.
The company’s gross margin increased to 49% during the latest quarter from 46% in the previous quarter, Chief Financial Officer Mike Kelly said on a conference call.
AOL is on track to gain 5 million subscribers this year, he said.
At IBM, net income dropped to $2.09 billion, or $1.12 a share, from $2.35 billion, or $1.24, in the fourth quarter of 1998. The results topped a reduced estimate of $1.06 a share from analysts surveyed by First Call/Thomson Financial. Analysts cut their forecasts after IBM warned of lower profit in October.
IBM’s sales fell 3.8% to $24.18 billion. The slowdown reduced sales of all IBM computers 11% and spilled over into the services business, which had been among its fastest-growing units.
“The rate of services clearly fell off as our customers focused on Y2K,” Chief Financial Officer John Joyce said.
Joyce reiterated IBM’s caution that first-quarter profit would be little changed to slightly lower than the year-earlier period’s.
Joyce said IBM’s sales and earnings for 2000 will be in line with current estimates. Analysts polled by First Call expect a profit of $4.30 a share for the year.
Armonk, N.Y.-based IBM’s shares fell 6 cents to $115.50 on the New York Stock Exchange before the report. They rose to $118 after the release. The shares have gained about 20% in the last 12 months.
Shares of Dulles, Va.-based America Online rose $3.25 to close at $64.50 in regular trading on the New York Stock Exchange before earnings were released.
AOL’s stock has dropped 12% since it announced its acquisition of Time Warner, largely on investor concern that revenue and profit growth would slow once the acquisition is complete.
At a Glance
Other earnings, excluding one-time gains or charges unless noted:
* Advanced Micro Devices Inc. trounced even the most optimistic forecasts with a report that fourth-quarter earnings doubled. Building steam with its speedy Athlon microprocessor--the brains of personal computers--AMD said earnings climbed to $65.1 million, or 43 cents a share, from $22.3 million, or 15 cents, a year ago. AMD, Intel Corp.’s biggest rival in the microprocessor market, said sales grew 23% to $969 million. Analysts on average had expected profit of a penny a share, according to First Call/Thomson Financial. Forecasts ranged from a loss of 11 cents to a profit of 26 cents a share.
* Conexant Systems Inc., the No. 2 maker of semiconductors for communications equipment, reported a fiscal first-quarter profit contrasted with a year-earlier loss as revenue climbed 73% to $510 million. The Newport Beach company earned $51.8 million, or 24 cents a share, for the three months ended Dec. 31, compared with a loss of $57.1 million, or 30 cents, a year earlier.
* Extreme Networks Inc., a maker of computer networking equipment, reported a fiscal second-quarter profit of $6.36 million, or 11 cents a share, swinging from a year-earlier loss of $1.95 million, or 5 cents. Revenue more than tripled to $55 million from $18 million. The results beat analysts’ estimate of 9 cents.
* QLogic Corp., a Costa Mesa maker of semiconductor products, said its earnings more than doubled on record revenue for its fiscal third quarter, which ended Dec. 26. The company also announced a 2-for-1 stock split, its third since going public in 1997, as the firm’s shares have exploded in value. The company said net income climbed to $15.6 million, or 40 cents a share, from $7.1 million, or 19 cents, a year earlier. Revenue for the period rose 73% to $52.3 million.
* Symantec Corp., a maker of security software, said its fiscal third-quarter profit including merger costs and other charges doubled to $31.7 million, or 50 cents a share, from $15.9 million, or 28 cents, as revenue grew 28% to $201 million and it cut costs. Excluding the charges, earnings were 53 cents a share, 3 cents better than analysts expected.
* Computer disk drive maker Western Digital Corp. said its fiscal second-quarter loss, to be reported Jan. 25, will be “significantly lower” than analysts’ estimates of $100 million before charges. The Irvine-based company also said it will stop making drives used in high-end computers and fire most of the 420 workers in its Minnesota facility to focus on personal computers.
