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IBM doubles its earnings in Q4

"We feel that the environment is steadily improving."

John Joyce, chief financial officer of IBM Corp

IBM Corp offered an upbeat outlook for the year as it announced that fourth-quarter earnings more than doubled and surpassed Wall Street expectations Thursday, continuing a streak of good financial news from technology companies.

In the last three months of last year, IBM earned US$2.7 billion, or US$1.55 per share, on revenue of US$25.9 billion. Those figures all surged from the comparable period a year earlier, when IBM posted a net profit of US$1.0 billion, or US$0.59 per share, on revenue of US$23.7 billion.

IBM's earnings from continuing operations were even better -- US$1.56 per share. Analysts surveyed by Thomson First Call were expecting US$1.50 per share and revenue of US$25.0 billion.

The report sent IBM shares up more than 4 percent. In trading on the New York Stock Exchange, IBM shares rose US$3.71 to close at US$94.02.

Some of the gloss on IBM's numbers came from weakness in the dollar, which inflates the dollar value of products sold in other currencies. While IBM's revenue jumped 9 percent in the fourth quarter, the rise would have been just 1 percent without currency fluctuations.

Global services, IBM's largest division, showed an 8 percent revenue increase, but would have had a 1 percent drop at constant currency rates.

Even so, the chief financial officer, John Joyce, told analysts on a conference call that IBM should gain momentum as its corporate customers see the improving economy as good reason to make new technology purchases.

"We feel that the environment is steadily improving," Joyce said. "I would characterize 2004 as the year when the [information-technology] industry will begin its next growth cycle."

Before Thursday's report, analysts were projecting that IBM would earn US$4.87 per share this year, with revenue of US$93.6 billion. Joyce said the profit forecast is "reasonable" but said revenue could be slightly higher.

IBM's report came on the heels of strong earnings releases from Apple Computer Inc, Intel Corp and Yahoo Inc. Also, two research firms said Wednesday that computer unit sales grew at a double-digit clip ;last year for the first time since 2000, though low prices kept revenues flat.

IBM signed services contracts worth US$17.3 billion in the fourth quarter, up from US$15 billion in the third. On IBM's last earnings call, in October, Joyce had said services bookings in the fourth quarter could be around US$14 billion, and some analysts even recently predicted that the company would fall short of that number.

However, Merrill Lynch analyst Steven Milunovich noted that profit margins in the services business were "light," calling that one of the few negatives in IBM's report.

The services division, which accounts for almost half of IBM's revenue, posted a pre-tax margin of 9.3 percent, compared to 15 percent for IBM as a whole, as competition kept prices down. But Joyce said overhead cuts and other moves would improve margins this year.

While virtually all of IBM's units showed growth, the technology group continued to struggle with soft demand for the high-end chips it makes for Big Blue and other companies. The group's overall revenue fell 17.5 percent to US$982 million in the fourth quarter, leading to a US$34 million loss.

Joyce said the technology group will be profitable in 2004.

For all of last year, IBM showed net income of US$7.6 billion, or US$4.32 per share, on revenue of US$89.1 billion. In 2002, net income was US$3.6 billion, or US$2.06 per share, and revenue was US$81.2 billion. That 10 percent revenue growth would have been 3 percent without currency fluctuations.
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