IBM Q4 income up, Palmisano cites investments

IBM Thursday reported net income for the fourth quarter of 2003 of US$2.7 billion or $1.55 per share, up from $1 billion and $0.59 in the same period of 2002.

The company reported revenue growth of 9.4 percent, with $25.9 billion for the three months ended Dec. 31, 2003, up from $23.7 billion in the year-ago period.

Earnings for the quarter rose 41 percent to $1.56 per share, from $1.11 in the previous year's quarter. Earnings topped the consensus $1.50 per share forecast of analysts polled by Thomson First Call.

The prior year period included $1 billion in after-tax charges, with $405 million of that related to the company's acquisition of Pricewaterhouse Coopers' Consulting business (PWCC), IBM said. Without the PWCC charges, earnings rose 16 percent over the year-ago period, the company said.

The company's financial performance owes to investments made during the economic downturn that helped position IBM for a rebound, Chairman and Chief Executive Officer Sam Palmisano said in a statement about the results.

The purchase of PWCC in 2002 was the first step to building IBM's capabilities in business outsourcing, which IBM expects to be key to its future revenue growth and profitability, said John R. Joyce, the company's senior vice president and chief financial officer during a Thursday webcast.

The company also bought Rational Software in February 2003 and Think Dynamics in May. Rational has become the fifth middleware brand within IBM's software group, joining Lotus, WebSphere, Tivoli and DB2, while Think Dynamics automated server provisioning business has been integrated into the Tivoli division.

Revenue from the middleware brands increased 14 percent to $3.4 billion in the fourth quarter, the company said.

This is likely to be a good year as the IT industry begins its next growth cycle, Joyce said. The industry stabilized in 2003, after several years in decline, and IBM is in a good position to take advantage as growth begins, Joyce said.

IBM's On Demand computing strategy is in place and gives the company a competitive advantage, he said. On Demand service grants companies access to computing resources, both capacity and software, as they need them, so that they only pay for the services they use.

Revenue from the Global Services group rose 8 percent and IBM signed $17.3 billion in services contracts in the fourth quarter, it said. This included three contracts of more than $1 billion and 18 more than $100 million.

Hardware revenue grew 12 percent year on year and the high end zSeries range, particularly the z990 products, "has legs going into 2004," Joyce said. XSeries Intel processor based servers and pSeries Unix-based servers also saw increased revenue, IBM said.

The Personal Systems Group saw revenue rise 16 percent to $3.5 billion, as increased sales of mobile products offset lower prices. ThinkPad sales have been strong, with revenue up 35 percent year on year, compared to a fall of 6 percent in desktop revenue.

The company is being forced, through competitive pressure, to reduce prices for lower-end servers and PCs in Asia and Europe, but the currency differences will mean there is little effect on the bottom line, Joyce said.

IBM had growth in all geographies, it said. In the Americas, fourth quarter revenue from continuing operations rose 4 percent from the same period in 2002, to $10.6 billion while revenue in Europe, Middle East and Africa (EMEA) rose 17 percent to $9.1 billion. Asia-Pacific revenue rose 13 percent to $5.4 billion. The percentage increases, however, were affected by currency fluctuations; if currencies were constant, the increases would have been lower at 1 percent for the Americas and EMEA and 3 percent for Asia-Pacific.

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