International Business Machines Corp said third-quarter profit fell 19 percent as computer and semiconductor sales declined. The largest seller of computers and related services said it will meet fourth-quarter profit forecasts, sending the shares up 4.6 percent.
Third-quarter net income dropped to US$1.60 billion, or US$0.90 a share, from US$1.96 billion, or US$1.08, a year earlier, the Armonk, New York-based company said. Sales fell 6.2 percent, more than expected, to US$20.4 billion from US$21.8 billion.
IBM has fared better than rivals as spending on information technology has slowed. The company's multiyear contracts for such services as running networks and data centers deliver recurring income even in a shrinking economy. Though sales of chips and computers are slumping, IBM said its backlog of pending contracts to run clients' networks as strong as it has ever seen.
"It's pretty encouraging," said SoundView Technology Group Inc analyst Gary Helmig, who has a "strong buy" rating on the stock. "They've shown their ability to manage costs and expenses to achieve their profit objectives." Helmig owns a "small amount" of shares in IBM, from the time he was an employee a decade ago.
The fourth-quarter average profit estimate of US$1.35 a share among analysts surveyed by Thomson Financial/First Call is "reasonable," IBM Chief Financial Officer John Joyce said on a conference call. According to First Call, 15 analysts have reduced their per-share forecasts for the current quarter in the past 30 days, bringing the average estimate down from US$1.48.
Shares of IBM rose as much as US$4.65 to US$106.50 in after-hours trading. IBM issued results after regular US trading ended. The shares fell US$0.15 to US$101.85 in regular trading.
The stock has risen 20 percent this year, the third-best performance in the 30-member Dow Jones Industrial Average.
In Japan, IBM shares traded on the Tokyo Stock Exchange rose 430 yen, or 3.5 percent, to 12,690, with 2,830 shares traded, or about half its six-month daily average.
Profit was expected to be 89 cents a share in the recent quarter on sales of US$20.8 billion, the average estimates of analysts polled by Thomson Financial/First Call.
Unlike many of its rivals, IBM hasn't cut its workforce.
Total employees stands at 320,000, up from 316,300 on Jan. 1, IBM spokeswoman Carol Makovich said.
Third-quarter sales of microchips declined "substantially" as demand from telecommunication equipment makers fell. Total sales by IBM's microelectronics division fell 30 percent from the second quarter. The chips are used in fiber-optic networks.
Chip sales aren't expected to pick up in the fourth quarter, and customers are holding about US$250 million in IBM semiconductors in their inventories, the same level as three months ago, Joyce said.
The third and fourth quarters will be "the bottom" for the company's chip business, Joyce predicted. The company said planned expansion of chip plants will slow this quarter as it cuts capital spending.
IBM's computer hardware sales slid 21 percent to US$7.5 billion, trailing Credit Suisse First Boston's estimate of US$8 billion.
The computer maker said it sold more z900 mainframe servers and iSeries servers, which manage and distribute files on corporate networks. Demand for the pSeries lineup declined as customers awaited availability of the company's new Regatta product in December.
Sales in the global-services division increased 5.4 percent, and software rose 9.7 percent, the company said.
Gross margin, or the percentage of sales left after paying production costs, rose 0.8 percentage points, although expenses as a portion of sales rose 2.6 percentage points to 25.1 percent, IBM said. Sales in the Americas fell 6 percent to US$9.1 billion, and revenue dropped 5 percent to 4.1 billion in the Asia-Pacific region. Sales gained 1 percent to US$5.7 billion in Europe, the Middle East and Africa.
"Outsourcing remains strong," Joyce said. "Our opportunity pipeline in the fourth quarter is as strong as we've ever seen." He said outsourcing contracts totaled US$10 billion in the third quarter, and the backlog of recurring revenue rose to US$97 billion, from US$95 billion in the previous period.
Desktop computer sales declined 30 percent and ThinkPad notebook sales dropped 28 percent from a year ago, though the profit margins are so small that the impact on the company's overall profit is negligible, Joyce said.
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