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IBM squeaks past expectations

Big Blue reports slower fourth-quarter sales than in the same period a year earlier, but still manages to top Wall Street expectations.

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
4 min read
IBM reported on Thursday slower fourth-quarter sales than in the same period a year earlier, but the company still managed to top Wall Street expectations.

Big Blue posted fourth-quarter earnings of $2.3 billion, or $1.33 per share, on revenue of $22.8 billion. That compares with earnings of $2.7 billion, or $1.48 cents a share, on revenue of $25.6 billion in the same period a year earlier. A survey of analysts expected the company to earn $1.32 per share, according to First Call.

For the entire year, IBM reported earnings of $7.7 billion, or $4.35 per share, on revenue of $85.9 billion. Analysts expected it to earn $4.35 per share for the year on revenue of $86.9 billion.

"This was a solid finish to a demanding year?and we continued to gain market share in high-priority segments of our software, storage and server businesses," IBM CEO Lou Gerstner said in a statement.

"We had our share of challenges too," he said, "but these were largely expected, (such as) slow PC sales and ongoing weakness in our (original equipment manufacturing) business. Our overall revenue decline came principally from these two units, and we've taken a number of actions to improve our long-term competitiveness in these areas."

IBM's outlook for the current year is guarded, though.

"Business conditions remain difficult as we enter the new year, although we believe that our business will strengthen as we move through the year," Gerstner said.

John Joyce, IBM's chief financial officer, concurred.

"The first half of this year, at a minimum, doesn't appear to have a much different economic look to it than what we've just come through," Joyce said during a conference call.

Still, Joyce said he is comfortable with analyst projections for the year.

A consensus of analysts predicts that IBM will see earnings of 90 cents per share for the first quarter on revenue of $20.3 billion, according to First Call.

Several factors should help IBM post a good year, Joyce said. These include continued gains in its software and server businesses, along with growth in services.

Joyce was bullish about the company's prospects to increase its services revenue this year.

"We should see double-digit growth in services in 2002," Joyce said, based on the strength of the business already in the pipeline, which includes a just-signed $1.2 billion services contract for customer relationship management.

Meanwhile, IBM will look to improve the cost structure of its PC business and expect to see more sales of hard drives and semiconductors. Executives predict that chip revenue will rise sequentially over fourth-quarter levels.

Much like its third quarter, IBM's fourth quarter was bolstered by sales of software, services and high-end servers.

Software revenue increased 6 percent to $3.8 billion in the quarter, compared with the fourth quarter of 2000. Revenue from its global services unit declined by 1 percent, to $9.1 billion. But IBM also signed up $15 billion worth of new business during the quarter, the company said.

Revenue from IBM's Shark storage line was up. But overall hardware revenue decreased 24 percent to $8.7 billion in the quarter, compared with the fourth quarter of 2000, due mostly to slower sales of PCs.

The PC business continued to be problematic.

IBM slipped to fourth place in worldwide market share during the fourth quarter, from a near tie with Hewlett-Packard for third place in the third quarter. Overall, IBM's PC shipments in the fourth quarter were down about 22 percent year over year, according to IDC.

Still, nearly every PC maker was flat or lost market share worldwide, except for Dell Computer. It also didn't help that IBM has essentially pulled out of the consumer market, which was where growth did occur in the fourth quarter.

IBM "did all right," IDC analyst Loren Loverde said of PC shipments. "The corporate space was not looking too hot (in the fourth) quarter. But going forward, IBM should have better results."

Meanwhile, the company is taking steps to try to curb costs and return the PC business to profitability by outsourcing.

The company announced last week that it will outsource a portion of its PC manufacturing. IBM forged a deal with Sanmina-SCI, which will take over manufacturing IBM NetVista desktop PCs.

Sanmina will take over manufacturing at IBM's Research Triangle Park, N.C., location, among others. IBM also announced that it will phase out its thin-client technology and license it to Neoware Systems.

Fourth-quarter sales of chips were up slightly over the third quarter but were down compared with the same quarter in 2000, the company said.