IBM posts Q3 growth, sees IT spending increase

IDG News Service - IBM's third-quarter revenue and income rose over last year's quarter amid signs the economy has stabilized, the company announced yesterday.
Growth in IBM's software and global services businesses offset declines in its hardware and financing units, as the company reported revenue of $21.5 billion, 9% higher than last year's $19.8 billion third-quarter total. IBM's revenue fell short, however, of the $21.9 billion consensus forecast of analysts polled by Thomson Financial/First Call in Boston. IBM met the analysts' consensus earnings expectations, with income of $1.8 billion, or earnings per share of $1.02.
Product demand isn't up yet across the board, and it's too early to predict a rebound. But customers are expected to increase their IT investments in 2004, IBM CEO Sam Palmisano said in a statement accompanying the company's financial release. IBM expects to add 10,000 new positions next year in key skill areas including services, middleware technologies, Linux and open-standards-based hardware and software, he said.
Aided by its PricewaterhouseCoopers Consulting acquisition, IBM boosted its services revenue 17% over last year's third quarter. With revenue of $10.4 billion during the quarter, the unit remains IBM's largest.
Hardware, IBM's second-largest division, posted a 1% revenue decline, to $6.7 billion. Revenue grew slightly in IBM's systems, storage and PC groups, while it declined significantly in its technology group, from which IBM has been divesting noncore manufacturing operations.
Specifically, revenue from IBM's pSeries Unix servers grew 5% year over year, despite supply problems with some low-end models. Sales of high-volume servers grew 40%, while revenue from its zSeries mainframes grew 1% from the same quarter last year, said John Joyce, IBM's chief financial officer, in a conference call to discuss the results.
Customers of IBM's z990 T-Rex mainframe systems can expect enhancements to that product in the fourth quarter, including support for as many as 32 processors, or twice the current number, and a doubling of the memory capacity to 256GB and the number of channels supported to 512, Joyce said.
Revenue from IBM's storage hardware grew 6%, thanks largely to its midrange offerings; sales of enterprise storage gear dropped 10%, IBM said. Revenue from the company's Personal Systems Group, including desktops and notebooks, grew 2% from the same quarter a year earlier, but pricing pressure, particularly in the Asia-Pacific region, led to a loss for the segment of $50 million. IBM still hopes to turn a profit from the Personal Systems Group in the fourth quarter, Joyce said.
IBM's software revenue grew 11%, to $3.5 billion, with DB2, WebSphere, Lotus and Tivoli all showing growth. Lotus Software Group's 9% revenue growth reverses the unit's previous trend of slumping sales.
The company thinks it gained or held market share in all the key segments of its middleware business, with sales of WebSphere products growing 12% from a year earlier and DB2 sales up 14%, Joyce said.
Financial analysts expect IBM to report a profit of $1.51 per share for its fourth quarter, on revenue of $25 billion, both of which would be improvements from a year earlier. Joyce called the estimates "reasonable," but tempered IBM's apparent optimism in his closing remarks. "As I said 90 days ago, overall IT spending remains good, but not robust. Customers remain cautious with capital spending," he said.

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