THE DAY AHEAD: Why boring Big Blue is beautiful again

COMMENTARY -- It took a ton of profit warnings from tech companies, $6.7 billion in share repurchases and a bear market, but boring IBM looks pretty good these days. Wall Street will take IBM's 6 percent revenue growth in the fourth quarter and gush like it was 600 percent.

Amid profit warnings from tech bellwethers, IBM (NYSE: IBM) emerged from the information technology muck relatively unscathed. Big Blue pocketed $2.7 billion, or $1.48 a share, in the fourth quarter, compared with $2.1 billion, or $1.12 a share, a year earlier. Analysts polled by First Call expected earnings per share of $1.46. Revenue was $25.6 billion, up from $24.2 billion a year ago.

More importantly, IBM said it is comfortable with its 2001 targets because it has a huge services backlog of about $85 billion.

On a conference call with analysts, CFO John Joyce admitted he didn't have much visibility into 2001, but said IBM was comfortable with analyst estimates for the year. For 2001, IBM is expected to report earnings of $4.99 a share on sales of $95.6 billion, according to First Call.

"From what we know today and our fourth quarter results, we are comfortable with consensus estimates for 2001," said Joyce.

Get ready for the lovefest. But don't get too carried away. IBM usually reports a quarter just like this one. Earnings are on target, revenue growth is so-so, and Joyce shows some nifty slides along with the company's conference call, which bores you to tears.

But now those results have Wall Street gushing. What changed? The market. The tech sector. Investor expectations. Just about everything. The only constant here is IBM.

IBM's typical plodding these days looks great -- 6 percent sales growth isn't bad when IT companies are handing out profit warnings like candy. IBM Chief Lou Gerstner said a year ago that he was pleased with 9 percent or so growth. Double-digit growth would really be neat. Wall Street scoffed. After all, those dot-coms that grew 200 percent from a revenue base of $2 million were much more fun.

IBM's results and the reaction to them today show how dramatically things have changed. IBM is everything you didn't want in 1999 and early 2000. IBM is big. It is a diversified portfolio of businesses that won't deliver great upside in good times, but won't collapse in a slowdown either. Simply put, IBM is a consistent yawner.

Now IBM is a savior, which means investors have been beaten into submission.

"IBM delivered a 'Tortoise beats the Hare' view of the IT market," said CS First Boston analyst Kevin McCarthy. "A story that has greater credibility in an era of dot-com bankruptcies."

Here's why Big Blue is beautiful:

1. Share buybacks: IBM spent $6.7 billion in 2000 to buy back its shares. Share repurchases puff up earnings by limiting the shares outstanding. The average number of basic shares outstanding was 1.76 billion in 2000 compared with 1.81 billion in 1999. IBM ended 2000 with $3.7 billion in cash, down 36 percent from a year ago. The cash went to share repurchases, capital investments of $5.6 billion and an 8 percent dividend increase.

2. Relativity: IBM looks good compared to its peers. In a market where tech companies are all warning about profits, just the fact IBM can grow at all is impressive.

3. An easy comparison: IBM could grow revenue in the fourth quarter because last year's comparable quarter was dinged by Year 2000 lockdowns.

None of those three reasons is anything to get too gleeful about. In fact, Merrill Lynch had the audacity to maintain a short-term "neutral" rating because of IT spending concerns. Nevertheless, investors will take what they can get. So will most analysts. Here's a quick look at the gushing you'll get today.