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IBMs first quarter profits fell 32 percent compared to a year ago, the company reported today, as corporate customers continued to delay planned technology purchases due to concerns over a weak global economy.
The results were largely in line with Wall Streets reduced expectations, which were lowered last week after IBM warned its sales fell short of projections.
For the first three months of the year, the company reported net income of $1.19 billion, or 68 cents a share, a decline from the $1.75 billion, or 98 cents a share, it posted for the same period last year.
Samuel Palmisano, who earlier this year assumed the title of chief executive from Lou Gerstner, who remains on as chairman, blamed the shortfall on continued economic uncertainty that has spurred corporate IT departments to rein in spending.
“Our first quarter results, while disappointing, were largely the result of the continued weak global business environment,” he said in a statement issued with the earnings report. “Customers in every part of the world deferred technology purchases in the first quarter, and these widespread deferrals hurt us across every one of our major business segments.”
Sales for the three-month period fell 12 percent compared to a year ago, dropping about $2.5 billion to $18.6 billion. The results marked the third consecutive quarter that IBMs earnings have declined.
Sales of its mainframes and personal computers were particularly hard hit, declining 25 percent from a year ago to $6.4 billion.
Revenue from its Global Services division, which has become the companys largest business unit, dipped only 3 percent to $8.2 billion. But the company reported its signed services contracts worth more than $15 billion during the quarter, up 50 percent from a year ago.
Software sales declined 1 percent to $2.9 billion.
IBMs efforts to match and undercut the prices of rival computer makers further undermined its earnings, as the companys gross profit margin declined to 34.7 percent from 36.1 a year ago. Amid an industry-wide slump in demand, major high-tech vendors have increasingly come to rely on cost-cutting to fuel demand and protect market share.
In addition to struggling with reduced sales of its products and services, the company based in Armonk, N.Y., recently was the target of an investigation by the Securities Exchange Commission, which probed allegations of questionable accounting by the computer maker. The SEC, however, cleared the company of wrongdoing and issued a statement Thursday that it had closed the inquiry.
Looking ahead, Palmisano expressed hope that a long awaited economic recovery would take hold in the second half of the year, reigniting the high-tech infrastructure build-out that skidded to a virtual halt at the end of 2000.
“While no one can predict the timing of a recovery, we remain optimistic that business conditions will improve later this year,” he said. “Our customers are telling us that information technology remains critical to the success of their businesses – and that they will continue to embrace IBMs e-business strategies, our products and servers.”