IBM Q3 meets expectations

IBM, describing business in the third quarter as mixed, yesterday reported net profit of $US1.8 billion, or 93 cents a share for the three-month period that ended September 30, up from earnings of $1.5 billion, or 78 cents a share, in the same quarter last year.

Results for the quarter include a one-time, after-tax benefit of $63 million, or 3 cents per share, resulting from several actions, specifically, the closing of IBM's sale of its Global Network in a number of regions. The company also completed three acquisitions, resulting in charges for research and development, IBM said. Less that 3 cents per share, the company earned 90 cents per share, meeting expectations of analysts polled by Boston-based First Call Corp.

Revenues for the quarter ending September 30 was $21.1 billion, a 5 percent increase over 1998 third quarter revenues, the Armonk, New York-based company said in a release issued after the close of trading on the New York Stock Exchange.

Traders showed renewed enthusiasm for technology sector stocks today following a strong quarterly earnings report on Wednesday from Microsoft as several technology stocks rallied. IBM, however, closed down 12 cents at 107.

Third-quarter revenues from the Americas totaled $9.6 billion, down 1 percent from the same period last year. Revenues from Europe/Middle East/Africa were $5.8 billion, down 2 percent from the year before period. In Asia and the Pacific, revenues grew 28 percent to $3.7 billion. OEM revenues were $2 billion, up 24 percent.

Hardware revenues totaled $8.8 billion, down 1 percent from the same period last year. Software revenues reached $3 billion, up 7 percent from the year before. Particularly strong in the category was middleware software necessary for e-business development, the company said. Global Services revenues increased 12 percent to $7.9 billion. IBM also reported record shipments of the Lotus Notes/Domino groupware products. Revenues from Global Financing increased 14 percent to $774 million.

Louis V. Gerstner Jr., chairman and chief executive officer of IBM, called the quarter "decidedly mixed," listing a slowdown in year-2000 products and services toward the end of the quarter and a shortage in flat panel displays among the factors that affected earnings negatively.

Services, software other than operating systems and manufacturing bolstered earnings, Douglas Maine, IBM's chief financial officer, said in a teleconference.

IBM expects the year-2000 slowdown to reduce earnings by as much as 20 cents in the fourth quarter and lead to slow growth in the first quarter of next year, but the company should begin to rebound shortly thereafter, Maine said. "Once we get beyond Y2K and into the first of next year, we expect customer buying patterns to return," Maine said.

The IT industry overall is expected to grow by 11 percent, up from 9 percent this year, and IBM should roughly follow that trend, he said. "Next year has the potential to be a very good year for IBM," Maine said.

One analyst said IBM may be placing too much emphasis on year-2000 problems instead of examining difficulties in consumer PC sales. "I'm not convinced it's all Y2K problems," said Schelley Olhava, an analyst with International Data Corp.

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