San Francisco, CA >> Finance >> Business >> IBM sees better-than-expected 2009 profit, earns US$4.4 billion in Q4
IBM sees better-than-expected 2009 profit, earns US$4.4 billion in Q4
Jordan Robertson, THE ASSOCIATED PRESS 2009-01-20 20:12:00 
SAN FRANCISCO - IBM Corp. forecast significantly higher profits for 2009 than Wall Street expected, a surprisingly bullish sign that reflects IBM's belief it can outmaneuvre the financial crisis by focusing on landing high-margin services and software contracts. Shares pof the computer services giant rose four per cent in extended trading.
The Armonk, N.Y.-based company predicted at least US$9.20 per share in profit in 2009. Analysts surveyed by Thomson Reuters were expecting $8.75 a share.
The gap reveals that analysts had been expecting IBM to be hurt worse by its heavy dose of sales to big banks and other customers devastated by the economic downturn. Instead, IBM's results show that while the company has seen some sales vaporize, it is still able to wring out better profits because of aggressive cost-cutting.
IBM said Tuesday its net income in the fourth quarter of 2008 was US$4.4 billion, or $3.28 per share. That amounted to a 12 per cent profit increase from $3.95 billion, or $2.80 per share, in the same period a year earlier.
Analysts were expecting IBM to earn $3.03 per share this time.
"A strong fourth quarter capped an outstanding year," chairman, CEO and president Sam Palmisano said in a release after stock markets closed Tuesday.
"In 2008 IBM performed well in an extremely difficult economic environment. Clearly our strategic transformation - migrating to the more profitable segments of the industry, investing in growth regions of the world, and driving productivity through global integration - is continuing to pay dividends.
"With our strong financial position, solid recurring revenue and profit streams and global reach, we are confident about 2009 and, based on our 2008 performance, we are ahead of pace on our roadmap for $10 to $11 per share."
One key measure of profitability - IBM's gross profit margin - expanded to 47.9 per cent of revenue, three percentage points better than the year-ago period. IBM credits its services business with leading the gain.
That came even as IBM's revenue fell six per cent to $27 billion, short of the $28.1 billion analysts were expecting. IBM said revenue would have decreased only one per cent were it not for currency fluctuations, but sales were down in all major geographic areas.
Revenue in services, IBM's largest business segment, dropped four per cent, but IBM was able to ink $17.2 billion in new services contracts. That was a healthy showing that demonstrates companies are still forking out for outsourcing and other technical support contracts, which are often viewed as money-savers in the long run.
Hardware revenue fell 18 per cent. Mainframe revenue fell six per cent, and sales of lower-end servers based on industry-standard processors fell 32 per cent.
IBM did not announce widespread job cuts, which some analysts believed were imminent, but repeated that it is still doing targeted layoffs as part of ongoing cost-cutting. IBM lays off thousands of workers each year, but overall head count keeps rising as the company adds jobs in faster-growing regions or more profitable divisions.
IBM is the world's largest computer services company, with 387,000 employees, including 19,000 in Canada, and a growing presence in India, China and other rapidly expanding economies in Asia.
The earnings report came out after IBM shares closed at $81.98, down $2.94 or 3.5 per cent on the New York Stock Exchange. The stock jumped to $85.30 in after-hours trading.
For the full year in 2008, IBM reported net profits from continuing operations of US$12.3 billion, up from $10.4 billion in the year-earlier period, an increase of 18 per cent.
Diluted earnings for 2008 were $8.93 per share, compared with $7.18 per diluted share in 2007, an increase of 24 per cent.
Annual revenues rose to $103.6 billion from $98.8 billion in 2007.
The Armonk, N.Y.-based company predicted at least US$9.20 per share in profit in 2009. Analysts surveyed by Thomson Reuters were expecting $8.75 a share.
The gap reveals that analysts had been expecting IBM to be hurt worse by its heavy dose of sales to big banks and other customers devastated by the economic downturn. Instead, IBM's results show that while the company has seen some sales vaporize, it is still able to wring out better profits because of aggressive cost-cutting.
IBM said Tuesday its net income in the fourth quarter of 2008 was US$4.4 billion, or $3.28 per share. That amounted to a 12 per cent profit increase from $3.95 billion, or $2.80 per share, in the same period a year earlier.
Analysts were expecting IBM to earn $3.03 per share this time.
"A strong fourth quarter capped an outstanding year," chairman, CEO and president Sam Palmisano said in a release after stock markets closed Tuesday.
"In 2008 IBM performed well in an extremely difficult economic environment. Clearly our strategic transformation - migrating to the more profitable segments of the industry, investing in growth regions of the world, and driving productivity through global integration - is continuing to pay dividends.
"With our strong financial position, solid recurring revenue and profit streams and global reach, we are confident about 2009 and, based on our 2008 performance, we are ahead of pace on our roadmap for $10 to $11 per share."
One key measure of profitability - IBM's gross profit margin - expanded to 47.9 per cent of revenue, three percentage points better than the year-ago period. IBM credits its services business with leading the gain.
That came even as IBM's revenue fell six per cent to $27 billion, short of the $28.1 billion analysts were expecting. IBM said revenue would have decreased only one per cent were it not for currency fluctuations, but sales were down in all major geographic areas.
Revenue in services, IBM's largest business segment, dropped four per cent, but IBM was able to ink $17.2 billion in new services contracts. That was a healthy showing that demonstrates companies are still forking out for outsourcing and other technical support contracts, which are often viewed as money-savers in the long run.
Hardware revenue fell 18 per cent. Mainframe revenue fell six per cent, and sales of lower-end servers based on industry-standard processors fell 32 per cent.
IBM did not announce widespread job cuts, which some analysts believed were imminent, but repeated that it is still doing targeted layoffs as part of ongoing cost-cutting. IBM lays off thousands of workers each year, but overall head count keeps rising as the company adds jobs in faster-growing regions or more profitable divisions.
IBM is the world's largest computer services company, with 387,000 employees, including 19,000 in Canada, and a growing presence in India, China and other rapidly expanding economies in Asia.
The earnings report came out after IBM shares closed at $81.98, down $2.94 or 3.5 per cent on the New York Stock Exchange. The stock jumped to $85.30 in after-hours trading.
For the full year in 2008, IBM reported net profits from continuing operations of US$12.3 billion, up from $10.4 billion in the year-earlier period, an increase of 18 per cent.
Diluted earnings for 2008 were $8.93 per share, compared with $7.18 per diluted share in 2007, an increase of 24 per cent.
Annual revenues rose to $103.6 billion from $98.8 billion in 2007.
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