IBM misses target but posts income, revenue gains

IBM missed analysts’ per-share earnings expectations but posted year-over-year income and revenue growth during its just-ended first quarter, the company said Monday.

Referring to the “ongoing difficult environment,” Chairman and Chief Executive Officer Sam Palmisano characterized the quarter as a strong one for IBM, and said the company continued to gain share in the markets it considers strategic.

IBM’s first-quarter income from continuing operations was $1.4 billion, up 8 percent over $1.3 billion in its first fiscal quarter of 2002. Revenue for the quarter from continuing operations was $20.1 billion, up 11 percent from $18 billion in the year-ago period.

Per-share earnings for the quarter, which ended March 31, were $0.79. The consensus estimate of analysts polled by Thomson First Call was for per-share earnings of $0.80.

That penny miss stems from accounting details, not underlying problems, IBM Chief Financial Officer John Joyce said during a conference call with analysts. IBM still hit revenue and profit estimates, he said.

“In the current environment, our revenue growth and profit were strong,” Joyce said. “What really matters is how we manage the company. We are managing the company to our strategy, and we are executing.”

Revenue from IBM’s Global Services business, augmented by its purchase last year of PwC Consulting, rose 24 percent over last year’s first quarter, to $10.2 billion.

Acquisitions also helped boost the company’s software division, which posted revenue of $3.1 billion, up 8 percent year-over-year. That total included the post-acquisition results of Rational Software, which IBM purchased in late February for $2.1 billion, adding a fifth unit to its Software Group.

Of the company’s software brands, Lotus and Tivoli were, as in previous quarters, IBM’s laggards. Tivoli revenue declined 5 percent as customers delayed buying decisions, while Lotus revenue dropped 1 percent. With the Lotus messaging market mature, growth is unlikely to pick up until the economy does, Joyce said.

DB2 revenue grew 22 percent, while WebSphere revenue increased 14 percent, the company said.

Hardware revenue dropped 1 percent, to $5.8 billion. Some of that decrease comes as IBM sheds troubled operations, through deals such as last year’s sale of IBM’s unprofitable hard disk drive operations to Hitachi.

After climbing into the black last quarter, IBM’s PC unit slid back into the red. Revenue from the Personal Systems Group dropped 5 percent year-over-year and the group recorded a $69 million loss.

IBM’s manufacturing wing, the Technology Group, also posted a revenue decline, down 21 percent from last year’s first quarter, but improved its profitability thanks to restructuring, Joyce said.

Servers and storage sales remained strong, Joyce said, with Shark revenue up 22 percent year-over-year.

IBM’s Global Financing unit continues to be a sore spot. Revenue from the division dropped 10 percent from last year’s first quarter, to $705 million.

Customers remain focused on investments with short-term benefits, Joyce said. The U.S.’s war against Iraq slowed business for a few days during the quarter, but economic uncertainty remains a larger factor in slow customer spending, he said.

Meanwhile, IBM plans to continue taking advantage of the weakened IT sector to pick up complementary businesses.

“We have been focusing billions of dollars in research and development, in capital and acquisitions, because we want to be out in front of a very important shift that is taking place,” Joyce said. “This use of our strong cash flow for acquisitions will continue.”