International Business Machines Corp., which disclosed stronger-than-expected preliminary fourth-quarter results earlier this week, said net income for the period surged 12% despite a slowing U.S. economy. It also gave a 2008 earnings forecast that was above Wall Street’s expectations.
IBM, regarded as a barometer of capital spending, reported net income of $3.95 billion, or $2.80 a share, for the quarter, compared with $3.54 billion, or $2.31 a share, a year earlier.
Monday, the company reported fourth-quarter earnings from continuing operations of $2.80 a share, compared with $2.26 a year earlier.
Revenue rose 9.9% to $28.87 billion. On Monday, IBM said six percentage points of the revenue increase was due to the weaker dollar. At the time, analysts polled by Thomson Financial were expecting the Armonk, N.Y., company to post fourth-quarter earnings of $2.60 a share on revenue of $27.62 billion.
Gross margin in the latest quarter was 44.9%, compared with 44.6% a year earlier.
Chairman and Chief Executive Samuel J. Palmisano, repeating his comment from Monday, said IBM is “well-positioned” heading into 2008. He cited the company’s “global business reach, solid recurring revenue and profit streams, and strong financial position.” IBM is “on track to achieve our long-term earnings-per-share roadmap objective in 2010,” Mr. Palmisano said.
Total global services revenue rose 17%. During the quarter, IBM signed services contracts totaling $15.4 billion, down 13%. It ended the year with an estimated services backlog of $118 billion, up $2 billion from a year earlier.
Revenue from systems and hardware was $6.8 billion, down 4% from a year ago when it still owned its printer business. Software revenue rose 12% to $6.3 billion. IBM has increasingly become a service provider and software firm while lessening its presence in the lower-margin and slow-growing hardware business.
According to slides available on the Internet prior to the company’s conference call, IBM projects fiscal 2008 earnings of $8.20 to $8.30 a share, up 15% to 16% from a year earlier. Analysts were looking for 2008 earnings, excluding items, of $7.94 a share.
IBM’s upbeat preliminary results led some analysts to speculate that the U.S. economic slowdown may not be hurting tech companies as much as expected. IBM’s news was supported by in-line preliminary fourth-quarter results from German software giant and fellow technology bellwether SAP AG.
Investors had been particularly concerned about IBM’s results because it gets about 30% of revenue from the financial sector, where subprime lending woes have led to massive write-downs by several of IBM’s biggest customers. IBM had cited a slowdown in the financial sector as worrisome in the third quarter.
Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co., said he believes a lot of financial companies use IBM mainframes and pay monthly fees for the software run on the big computers, so they aren’t able to cut spending dramatically. Mr. Sacconaghi said that while investors have been worried, risk to IBM is reduced because about 60% of the company’s profits are recurring revenue from software license fees and long-term services contracts not affected quickly by customers’ budget-cutting.
On Monday, Mr. Palmisano said the “broad scope” of IBM’s global business - led by strong operational performance in Asia, Europe and emerging countries - drove results.
Deutsche Bank analyst Chris Whitmore, however, said that despite IBM’s upbeat results, he anticipates worldwide information-technology spending this year will rise only 3%, compared with a 6% to 7% increase last year.
By MIKE BARRIS
online.wsj.com
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