IBM Exceeds Earnings Expectations

IBM notched a 7 percent jump in 4Q revenue, but net earnings down 56 percent compared to same year-ago period.

Benefiting from an increase in services revenues—mostly due to the addition of PricewaterhouseCoopers consulting business—IBM reported a 7 percent jump in fourth-quarter revenue and better-than-expected earnings from continuing operations. Net earnings of $1.02 billion, or $1.11 per share, however, were dragged down by $614 million in acquisition-related charges and were down 56 percent compared to IBMs net earnings of $2.33 billion in the fourth quarter of last year. IBMs revenue for the quarter was $23.7 billion.

IBM ended the year with a 2.3 percent drop in revenue to $81.19 billion and a 53.7 percent drop in net income to $3.58 billion.

IBM Senior Vice President and Chief Financial Officer John R. Joyce said the company saw IT spending among its customers begin to stabilize in the fourth as well as the third quarter. "We hope, as we look to 2003—the second half—that we will see an uptick," he said, in remarks to analysts.

Revenue from IBMs Global Services group increased 17 percent for the quarter to $10.6 billion compared to the fourth quarter of last year. New contract signings, at $18 billion in the quarter, were the second highest ever for a quarter at IBM, Joyce said. Most of the increase—14 percent of the revenue growth—however, was due to the addition of PwC. And the addition of PwCs typically lower-profit-margin business reduced Global Services gross profit margins for the quarter by 1.9 points to 26.3 percent.

On the hardware side of its business, IBM said profitability was generally up. In the companys long-stagnant PC business, though revenue of $3 billion was flat compared to the fourth quarter of last year, the business unit recorded a $47 million profit for the quarter. Lowered expenses from reduced inventories and better accounts receivable practices accounted for much of the improved profitability.

On the hardware side, the xSeries Intel-based server line also did well during the quarter, increasing revenue by 14 percent compared to the fourth quarter of last year.

Not all hardware lines were as robust, however. Revenue from IBMs iSeries servers fell 13 percent during the quarter. And mainframe revenue was down 4 percent, although the shipment of mainframe capacity during the quarter grew by 24 percent.

Software revenue, at $3.8 billion, was flat compared to the fourth quarter of 2001. Although IBMs data management family of products as a whole saw revenues fall 3 percent during the quarter, revenues from its DB2 database products rose 11 percent. Revenue from IBMs Websphere Web server family of products grew, albeit at 4 percent, slower than in earlier quarters.

Revenue from IBMs Technology group fell 20 percent for the quarter, although profitability—at $42 million for the quarter—improved by $26 million compared to the fourth quarter of last year. Much of the falloff was due to IBMs decision to exit businesses such as display and card manufacturing.

Among customers, IBM said it saw is strongest growth in the financial services, telecommunications and distribution sectors. Revenue from small and medium-sized businesses grew in the quarter by 15.9 percent.