IBM, Intel Post Drops in Earnings
IBM Corp. and Intel Corp., two of the world’s largest technology companies, reported slowing sales and profits in the third quarter but said that last month’s terrorist attacks had not significantly altered their forecasts for a recovery.
Armonk, N.Y.-based IBM, the biggest computer maker, said quarterly net income fell 19% to $1.6 billion, or 90 cents a share, beating the average Wall Street estimate by 1 cent per share.
IBM’s quarterly revenue fell by 6% to $20 billion, more than analysts had expected, with sales of computer gear down 18%. But much of that was in unprofitable personal computer sales, which IBM has been scaling back, and a slowdown in microelectronics sales, including semiconductors.
IBM has fared better than many rivals as the company’s multiyear contracts for services, such as running networks and data centers, deliver recurring income even in a weak economy.
As IBM executives said their services business would do well in the fourth quarter and into next year, shares in the company jumped to $105.92 in after-hours trading. In regular trading, IBM’s shares fell 15 cents to $101.85 on the New York Stock Exchange.
At Intel, the top maker of semiconductors that power PCs and communications gear, net income plunged 96% from a year earlier to $106 million, or 2 cents a share.
Excluding acquisition-related costs, Intel’s profit would have been $655 million, or 10 cents a share, which met Wall Street’s forecasts.
Intel’s shares rose 58 cents to $24.96 on Nasdaq in regular trading, then inched up to $25.45 after hours.
Investors kept a close eye on both firms as they look for a bottom in technology stocks suffering from the slumping global economy.
“We are very positive on [IBM CEO] Lou Gerstner’s strategy,” said analyst Kevin Fujimoto of Banc of America Capital Management, which holds IBM shares. “We really think that IBM has the strongest business model in terms of an annuity-like revenue stream” from services contracts.
IBM said some big service contracts it had planned to close in September had been pushed back into the fourth quarter. But executives said the outlook for services, which account for more than half of Big Blue’s profit, was stronger than ever.
IBM ended the third quarter with a $97-billion service contract backlog.
IBM’s stock has risen 20% this year, the third-best showing among the 30-member Dow Jones industrial average.
“Many customers continue to integrate their business applications across their enterprises,” said IBM Chief Financial Officer John Joyce. “Signings will again accelerate, just as they did after Y2K.”
Intel’s profit fell much more sharply, as its fortunes are more closely tied to the personal computer industry, which is in the worst slump in more than a decade.
Intel said its sales fell 25% to $6.5 billion in the third quarter compared with a year earlier and that the terrorist attacks did not noticeably hurt its business. Intel’s profit was already damaged by a price war with rival Advanced Micro Devices Inc. and by the falling value of Intel’s equity investments.
Intel’s revenue from sales to telecommunications customers did worse than expected, and its communications group continued to lose money.
Intel expects that its fourth-quarter sales will hold steady from the third quarter and that gross profit will improve slightly as it sells more Pentium 4 chips.
“It looks like they hit the absolute bottom in gross margins,” said US Bancorp Piper Jaffray analyst Ashok Kumar.
But this year may mark Intel’s first annual sales decline since 1986.
While Intel’s projections don’t suggest the typical seasonal upswing in PC sales, executives said 2002 should be better than 2001, the worst year on record.
The second quarter “was the bottom,” said Intel Vice President Paul Otellini.
Intel and IBM shied away from predicting when the recovery will occur.
But IBM said it can weather a longer storm than its competitors because of its recurring revenue.
And Intel said it was gaining market share from AMD, which is no longer making chips that process as much data as quickly.
“While economic conditions worldwide remain weak, we continue to strengthen our competitive position and expect to see moderate unit growth in microprocessors and flash memory in the fourth quarter,” said Intel Chief Executive Craig Barrett.
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Times’ wire services contributed to this report.
