IBM shrugs off downturn as earnings rise
Published: 17 Oct 2008 11:08 BST
IBM, Google and AMD posted positive earnings reports on Thursday, lifting their stock prices in after hours and providing hope that things won't be as bad for the technology sector as some fear.
IBM reported a 20 percent rise in third-quarter earnings on the back of strong software and services sales, and said it expects to meet its 2008 outlook, despite the economic downturn that has companies curbing spending.
At the same time, Google beat analyst expectations with third-quarter earnings per share of $4.92 (£2.84) on revenue of $4.04bn, and AMD posted a significantly smaller net loss than expected, at 11 cents.
The news pushed IBM's share price up 2.4 percent in after-hours trading to $93.71, while AMD's price jumped 10.4 percent to $4.55 and Google's rose 10.2 percent to $389.15.
"All these companies are global companies and most of them are driving growth from overseas markets, and not everybody is as sick as Wall Street," said Bob Djurdjevic, president of Annex Research.
He said that, in particular, IBM's mainframe revenues growing 25 percent is a very positive sign, given that banks and financial companies are major customers.
"That alone is an indicator for how overstated and exaggerated the pessimism on Wall Street is," Djurdjevic said.
For the third quarter, which ended 30 September, IBM posted earnings of $2.8bn, or $2.05 per share, on revenue of $25.3bn, which was up five percent from a year ago. The numbers were in line with the pre-announced results released by the company last week. The company has nearly $10bn in cash.
While revenue for global technology services rose eight percent and software rose 12 percent, hardware revenue fell 10 percent. Signed services contracts totalled $12.7bn, down four percent, while short-term signings rose 13 percent, to $6.1bn.
"This is a tough environment but we were ready for it," IBM chief financial officer Mark Loughridge said in a conference call.
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Loughridge cited IBM's ongoing activity around spending cuts and margin performance as reasons for executives being optimistic about meeting the company's full-year 2008 earnings outlook of $8.75 per share.
Asked what would have to happen in order for IBM to miss its expectations, Loughridge said: "We would have to have major markets fall off much more substantially and... we would have to see a dramatic slowdown in our emerging countries, but we don't see that."
IBM's revenue outside the US, where the company generates 75 percent of its business, rose 10 percent, he said.
In a statement, IBM chief executive Sam Palmisano wrote: "Our results demonstrate that the combination of a steady base of recurring revenue and profits, a range of products and services that deliver value to clients worldwide, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times."
"These strengths, along with our strategy to manage for productivity in major markets and to invest for growth in emerging countries, have enabled IBM to thrive, despite an economic environment that no-one could have predicted," said Palmisano.
Credit: IBM produces good news for weary tech sector from CNET News
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