International Business Machines Corp, the largest seller of computers and related services, said second-quarter profit rose 5.4 percent and sales slipped, hurt by a drop in demand for computers and software.
Net income rose to US$2.05 billion, or US$1.15 a share, from US$1.94 billion, or US$1.06, a year earlier. Profit matched the average estimate of analysts polled by First Call/Thomson Financial. Sales fell to US$21.6 billion, less than expected, from US$21.7 billion.
The company said sales of chips and personal computers may slow in the second half, yet maintained its forecast for 2001 sales growth at a percentage at or close to the high single digits.
Sales of services, which help corporations reduce costs and streamline networks, rose 6.8 percent in the quarter on US$16 billion in new signings, almost making up for lower hardware and software revenue.
"They are really quite bullish compared with anyone else in the industry for the second half," Wit Soundview analyst Gary Helmig said.
Analysts on average expected sales of US$22.6 billion in the recent quarter, according to First Call. The shares of Armonk, New York-based IBM fell as low as US$100.62 after the report. They lost US$4.25 to US$104.28 in regular trading before the earnings report. At Wednesday's close, they were the fourth-best performer in the 30-member Dow Jones Industrial Average this year, having risen 23 percent.
Total sales growth for 2001 "will be at or close to" a percentage in the high single digits, said Chief Financial Officer John Joyce.
While Joyce's comment reaffirmed his forecast in April, the prediction doesn't reflect possible future changes in the value of the US dollar. If the dollar strengthens further, IBM sales will tend to fall; if it weakens, sales will tend to rise. Joyce made no prediction on where he thinks the currency will go.
"We expect to be one of the very, very few [information technology] companies to grow revenue and earnings per share in 2001," Joyce said.
IBM rivals including Compaq Computer Corp, EMC Corp, Sun Microsystems Inc and Hewlett-Packard Co have either reported declining profit, reduced their sales and earnings forecasts or cut thousands of jobs in the face of meager demand.
Merrill Lynch & Co analyst Tom Kraemer called IBM's second quarter "a mixed bag."
IBM Chairman and Chief Executive Louis Gerstner, in a statement, blamed the revenue drop on ``weakness'' in sales of PCs and hard-disk drives and the impact of the strong dollar.
"These factors will continue to work against us in the second half," Gerstner said, adding that sales of semiconductors are also showing "signs of slowing." Sales in IBM's microelectronics group, which includes semiconductors, will be crucial to the company's second-half results, Joyce said. He wouldn't predict whether customers' orders will pick up soon.
Hardware sales fell 5.5 percent in the second quarter to US$8.65 billion, and software declined 4.6 percent to US$3.04 billion, the company said. Sales in the Americas and Europe declined 1 percent, and Asian sales fell 2 percent.
Foreign currency translation reduced total sales by 5 percentage points. The strength of the dollar reduces the amount of revenue IBM reports when foreign sales are converted into US currency.
IBM has reduced its own costs through automated, Web-based electronic commerce with customers and suppliers. The company said its expense-to-revenue ratio was little changed at 23.8 percent from 23.5 percent a year ago.
RSS