IBM sales stumble, but profit higher than expected
IBM Corp.'s first-quarter results slipped as all its major business units suffered declines, but the company backed its bullish outlook for 2009 on Monday, reflecting its belief that a broad mix of services and software will help it weather the recession.
The Armonk, N.Y.-based company's profit beat Wall Street's forecast, but sales fell short. The stock was down 1.5 per cent in after-hours trading Monday.
After the market closed IBM reported its profit was $2.30 billion US, or $1.70 per share. That was higher than the $1.66 per share analysts were expecting.
In the same period last year, IBM earned $2.32 billion, or $1.64 per share.
Sales fell 11 per cent to $21.7 billion, short of the $22.5 billion analysts polled by Thomson Reuters were expecting. IBM said the revenue drop would have been four per cent were it not for the effects of a strengthening dollar.
The earnings report came on the same day that longtime rival Sun Microsystems Inc., which had recently been in talks to be bought by IBM, announced a $7.4 billion US deal instead with Oracle Corp. IBM appears unlikely to try to outbid Oracle.
IBM used the earnings release to reiterate its previous guidance for earnings of $9.20 US per share in 2009. The company pointed to its better profit margins in services and software, which together contribute more than 80 per cent of IBM's revenue and can be successful in a downturn by helping corporate customers save money.
However, the downturn still showed up in the first-quarter numbers. Services revenue was $13.2 billion US, down 10 per cent. Software sales were $4.5 billion US, a six per cent decline.
Hardware sales took a bigger hit, falling 24 per cent to $3.2 billion US. Sales of both high-end mainframe computers and industry-standard servers showed double-digit declines.
In another closely watched indicator for IBM, it signed new services contracts worth $12.5 billion US in the first quarter, a decrease of one per cent from last year. Were it not for currency fluctuations, the value would have risen 10 per cent, IBM said. These contracts represent revenue that will be booked in the coming years.