As Expected, IBM Reports Flat Q2 Income

IBM Corp. officials expected flat second-quarter growth and that's exactly what the company reported Wednesday, with $US1.9 billion in net income compared to $US2.4 billion a year ago. Second-quarter revenue dropped 1 percent, or was flat at constant currency, to $US21.7 billion compared to a year ago.

IBM did, however, top the consensus estimates of 23 analysts polled by First Call/Thomson Financial. Analysts estimated that IBM would report diluted earnings per share of $US1, but the company beat that, posting earnings per share of $US1.06.

"With the transition of the first half of the year behind us we are now looking forward to a strong second half," said John Joyce, IBM's senior vice president and chief financial officer during a news conference to announce the results.

IBM expects that a stronger second half will come on the heels of renewed IT spending by companies that do business on the Internet, which IBM refers to as e-business. During the second quarter, IBM announced it will invest more than $US1 billion in development, marketing and sales of its WebSphere Web management line during the next several years.

But IBM had to wade through the flat second quarter first. The company's bottom line was affected by fallout from the year 2000 computer problem, which led customers to delay IT spending, officials said. IBM also saw the effects of a series of actions taken last year to improve its long-term profitability, as well as by slower PC and server sales.

Pulled down by sluggish PC sales, hardware revenue dropped 5 percent for the quarter to $US9.2 billion. PC sales dropped $140 million compared to the year-ago quarter. New, less expensive products should spur sales in coming quarters, and problems obtaining components from a manufacturer also are being addressed, Joyce said.

Server revenue derived from sales of new high-end and mid-range models was up, though System/390 and AS/400 revenue dropped, mostly because of price reductions and a product transition, respectively.

Software revenue rose 2 percent to $US3.2 billion with strong growth in middleware products used by companies doing business on the Internet. Along those lines, Web management software, consulting services offered to companies that do business on the Internet and Web hosting all had a strong quarter, as did wireless chips and systems integration, the company said.

Net income for six months ending June 30 was $US3.5 billion or $US1.89 a diluted common share compared to $US3.9 billion and $US2.05 per diluted share for the first half of fiscal 1999. If the after tax net benefit from the sale of Global Network and other 1999 actions are excluded, the figures from last year drop to $US3.2 billion or $US1.69 per diluted share. Excluding the after-tax net benefit of $US687 million from the gain on that sale and other actions, the company had net income of $US1.7 billion for the year-ago quarter.

Regionally, Asia-Pacific showed the strongest growth, up 20 percent from the year-ago quarter to $US4.3 billion. Revenue for the second quarter in the Americas was $US9.7 billion, down 3 percent from a year ago. Revenue from Europe, the Middle East and Africa was down 9 percent , to $US5.9 billion. OEM (original equipment manufacturer) revenue was down 6 percent to $US1.8 billion in the year-ago quarter.

IBM released its financial report after the Nasdaq Stock Exchange closed for the day. The company ended the trading day Wednesday up almost 4.7 percent at $US108 per share compared to Tuesday's closing price, according to the Nasdaq Web site.

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