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Fri, Oct 17, 2003 - Page 12 News List

IBM to add 10,000 jobs globally

PRODUCTIVE PERIOD The technology bellwether saw its quarterly profits rise 37 percent over the same period last year, and expects to maintain its winning streak

AP , NEW YORK

Bountiful services contracts helped third-quarter profits at IBM Corp match analysts' expectations Wednesday, and the technology bellwether offered an unusual dose of optimism about the industry's prospects for a turnaround.

In the three-month period that ended Sept. 30, IBM had net earnings of US$1.79 billion, or US$1.02 per share, a 37 percent gain from the comparable period last year, when Big Blue showed profits of US$1.31 billion, or US$0.76 per share.

Revenue jumped about 9 percent to US$21.52 billion in the third quarter, from US$19.82 billion a year ago, though the gain would have been 4 percent without currency fluctuations. The comparison figure from last year excludes discontinued operations such as the disk-drive business IBM sold to Hitachi Ltd.

The consensus of analysts surveyed by Thomson First Call was for earnings of US$1.02 per share. IBM fell short of Wall Street's revenue forecast of US$21.86 billion.

IBM executives had been guarded about the future in previous earnings reports, but chairman and chief executive Sam Palmisano said in a statement Wednesday that "we are beginning to see signs that the economy has stabilized." Palmisano said IBM expects to add 10,000 new jobs around the world next year.

"As we look to 2004, more customers are expected to increase their investments in information technology," he said. "Although it is too early to say that a rebound is at hand, we are confident that we will benefit from both a pickup in [information-technology] spending and an economic recovery."

Even so, John Joyce, IBM's chief financial officer, declined to raise short-term expectations. He told analysts on a conference call that the current consensus estimate for the October-to-December quarter -- earnings of US$1.51 per share on revenue of US$25.0 billion -- is "reasonable."

Rob Schafer, a senior analyst with the Meta Group, said that while Palmisano's outlook carried a fair amount of caution, the pledge to add jobs next year was a "pretty substantially positive statement."

With tech budgets still tight in the third quarter, IBM's services division stood out as a bright spot. Revenue jumped 17 percent -- 11 percent without currency fluctuations -- to US$10.4 billion, nearly half the company's total.

IBM said it signed more than US$15 billion in services contracts in the quarter, most of them long-term deals. Joyce said a near-repeat performance of around US$14 billion is likely in the fourth quarter.

However, the services division's gross margin fell to 25.1 percent in the third quarter from 26.5 percent last year.

"You need to see a gross margin trend in their favor before you can feel really good about services," said Marty Shagrin, an analyst with Victory Capital Management.

The second-biggest slice of IBM's business, the hardware division, suffered a 1 percent drop in revenue, to US$6.7 billion, but the drop would have been 5 percent without fluctuations in the dollar.

Perhaps the biggest blight on IBM's results has been its semiconductor operation, which makes chips for IBM servers and mainframes and for other companies but has had to cut jobs and pay at several factories recently. This earnings report revealed continued trouble in the technology group: a pretax loss of US$96 million and a 30 percent drop in revenue, to US$882 million.

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