IBM Earnings Soar as Sector Strengthens
After a second technology giant this week reported a sharp increase in sales and profit, analysts said the question of the day had shifted from whether the three-year industry slump was ending to how strong the recovery would be and how many jobs it might create.
IBM Corp. on Thursday joined Intel Corp. in more than doubling its fourth-quarter net income, and Big Blue’s chief financial officer, John Joyce, pledged more of the same for the year ahead.
“I would characterize 2004 as the year when the information technology industry will begin its next growth cycle,” Joyce said during a conference call after announcing IBM’s results. “We feel that the environment is steadily improving.”
On its own, IBM plans to add 10,000 jobs around the world in 2004, spokesman John Bukovinsky said. And the major spending by IBM customers and others on new computer hardware will lead to more jobs throughout the U.S. economy, said analyst John Jones of SoundView Technology Corp.
“Higher volumes drive jobs for manufacturing, management, development and integration,” Jones said. Many machines from IBM and its rivals “are going into new projects, and new projects have lots of related investment.”
IBM’s rosy report and forecast -- its most positive in years -- came after Wednesday’s strong earnings announcements from Intel, the biggest maker of computer chips, and Yahoo Inc., one of the most-trafficked sites on the World Wide Web.
Taken together, the reports are emphatically good news for one of the industries hardest hit by the economic slide that began in 2000. And rising fortunes for technology companies typically lead to improvement in the overall economy, analysts said.
A broad if tentative recovery has been in progress, though with relatively few new jobs to show for it. That’s partly because of the higher productivity that technology brings.
“Most of the growth in technology jobs has been from start-ups, and right now they are still in a lull ... maybe by the middle of the year,” said Stephen Levy, director of the Center for the Continuing Study of the California Economy. “The good news is, innovation isn’t dead.”
At IBM, fourth-quarter sales rose 9.4%, propelling the company’s stock to its highest level since early 2002. The shares climbed $3.71 on Thursday to $94.02 on the New York Stock Exchange.
Earnings at the world’s biggest combined computer maker and consultant leapt to $2.7 billion, or $1.55 a share, from $1 billion, or 59 cents, a year ago. The results from 2003’s final quarter included $1 billion in charges.
Recent optimistic comments from IBM executives had led Wall Street to expect a strong quarter, but the profit and revenue gains were far better than anticipated. Sales reached $25.9 billion, more than $1 billion higher than projected, Merrill Lynch analyst Steven Milunovich said.
IBM made strides in all key areas in the last three months of the year, reporting revenue increases of 12% in machinery, 8% in services and 12% in software. Even the battered personal computer division turned in 16% more sales and a small pretax profit, driven by a 35% rise in laptop revenue.
For the full year, IBM earned $7.6 billion, or $4.32 a share, up from $3.6 billion, or $2.06 a share, in 2002. Sales for 2003 increased 9.8% to $89 billion.
Joyce told analysts that their expectations for 5% revenue growth in 2004 could be a percentage point too low. He said IBM’s long-term plans called for increasing earnings per share by 10% or more annually.
IBM added 4,000 jobs in 2003, bringing the total to 319,000, and Bukovinsky said the company was looking to hire more specialists to work on high-end services, “middleware” software technology and the free Linux operating system.
One of IBM’s big pushes lately has been to manage systems for other companies, part of the sweeping trend known as outsourcing. Some of the employees handling that contract work are in lower-cost countries overseas, such as India. But many of the new jobs that would accompany a true technology resurgence would be in the U.S., Jones said.
“In a recovering economy,” Joyce said, “the first step is to update information technology.”
