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| Tuesday, October 17, 2006 |
IBM Handily Tops 3Q Forecasts With 5 Percent Revenue Growth; Profit Jumps 50 Percent
International Business Machines Corp. handily topped Wall Street forecasts for the third quarter, with revenue growing 5 percent as strong sales of software and hardware helped offset more weak growth in the key computer services business.
The quarter's net profit of $2.22 billion marked a 50 percent improvement from a year ago, thanks largely to a lower tax bill.
Net income for the three months ended Sept. 30 amounted to $1.45 per share. In the same period last year, IBM earned $1.52 billion, or 94 cents a share, as the company absorbed a $525 million tax expense on foreign earnings that were repatriated to the United States.
Wall Street analysts expected a per share profit of $1.35, according to a survey by Thomson Financial.
IBM's share price surged 5.5 percent to a 52-week high following the report, rising $4.78 to $91.78 in after-hours trading. The stock had risen 24 cents to $86.95 on the New York Stock Exchange in advance of the report, which came after the close of Tuesday's regular session.
Third-quarter revenue totaled $22.62 billion, up from $21.53 billion a year earlier. Global services accounted for $12.02 billion of the tally, an increase of just 2.7 percent. Hardware sales improved 8.9 percent to $5.58 billion, while software revenue rose 8.5 percent to $4.41 billion.
Despite the better-than-expected showing, analysts peppered the company's chief financial officer with questions about another disappointing performance for the services business, which accounts for more than half of IBM's revenue.
Profit margins from the services business improved to 27.8 percent from 26.1 percent in the year-ago period. But adding to the concerns voiced by analysts, IBM reported that the unit had signed $10.5 billion in new contracts, down 29 percent from the year-ago period and the second straight disappointing quarter for that indicator of future revenues.
The tally marked an improvement from this year's second quarter, when there were $9.6 billion in new contracts, but CFO Mark Loughridge acknowledged that a number of major deals expected to be finalized by the end of September "slipped out of the quarter."
"We fully expected to grow our signings more. We just didn't get the deals closed," CFO Mark Loughridge said in a conference call after the report, noting that the current quarter's signings should benefit from the delay.
"I want to point out that although revenue growth for services was not at our objective, it was an improvement from the second quarter to the third quarter," he said. "We need to continue that momentum."
Software "was our largest profit contributor," Loughridge said. "We've been investing heavily in our software business for some time. Our performance in 2006 underscores that this strategy is working."
IBM said its gross profit margin improved a notch to 42 percent, up from 40.6 percent in last year's third quarter.
In the first nine months of 2006, IBM earned $5.95 billion, or $3.81 per share. In the same period last year, earnings totaled $4.75 billion, or $2.90 per share, a number that also reflects the big tax expense. Revenue so far in 2006 has totaled $66.71 billion. That's down 2.3 percent from $66.71 billion in the year-ago period, which included sales from the personal computer business that was sold to China's Lenovo Group Ltd. |
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