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Sat, Jul 17, 2004 - Page 12 News List

Hardware sales spur IBM's profits

BOOST FOR BIG BLUE The company made US$1.99 billion on revenue of US$23.15 billion, although those figures were inflated due to the weakness of the dollar

AP , NEW YORK

IBM Corp said its second-quarter profits surged 17 percent on strong growth in computer hardware sales, beating Wall Street's forecast for the technology bellwether.

From April through last month, IBM earned US$1.99 billion, or US$1.16 per share, on revenue of US$23.15 billion, it said on Thursday. In the same period last year, IBM made a net profit of US$1.71 billion, or US$0.97 per share, on revenue of US$21.63 billion.

This time around, analysts surveyed by Thomson First Call were expecting IBM to show earnings of US$1.12 per share and revenue of US$23.35 billion.

Chief financial officer, Mark Loughridge, said the information- technology market is growing about 4 percent or 5 percent a year -- the best it has been this decade -- and noted that "customer spend-ing continues to improve."

The report was being closely examined by technology investors, who had reason for concern on Tuesday when Intel Corp. lowered profit forecasts because of an unexpected buildup of inventory.

As in recent quarters, weakness in the dollar inflated IBM's revenue figures. Big Blue's 7 percent growth in overall revenue would have been 4 percent without currency fluctuations.

IBM gets half of its revenue from technology services, a division that grew 7 percent to US$11.33 billion in the second quarter.

However, that rise would have been 2 percent without currency fluctuations. Also, services' gross margins fell slightly in the quarter, to 25.2 percent from 25.9 percent a year earlier.

Hardware, including mainframe and server computers that traditionally have been Big Blue's bread and butter, saw a 12 percent leap in sales (10 percent at constant currency) to US$7.42 billion -- and a hefty increase in gross margins, to 29.2 percent from 26.9 percent.

A key hardware division, the technology group, which makes high-end chips for IBM and other companies, had been a money-loser but swung to a US$111 million pro-fit in the quarter, boosted by a licensing deal with Applied Micro Circuits Corp.

Mark Stahlman, an analyst with Caris & Co, said the overall hardware performance was surprisingly strong considering that IBM was going through product transitions in two lines of servers.

"That's news for many people who had been expecting this company to plod along as an annuity-based services business," Stahlman said.

Services and hardware counteracted a flat performance in software, which pulled in US$3.49 billion in revenue in the quarter. Without currency adjustments, software revenue would have dropped 4 percent.

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