IBM reports strong Q4 profits; no layoffs announced

Income rises 12% despite revenue drop; union organizers in 'wait-and-see mode' on job cuts

IBM today reported net income of $4.4 billion for the fourth quarter of 2008, a 12% increase year over year. The growth in profits came despite a 6% drop in revenue, to $27 billion.

Earnings per share totaled $3.28, handily beating Wall Street's expectations. Financial analysts polled by Thomson Reuters had on average predicted earnings of $3.03 per share on revenue of $28.15 billion.

For 2008 as a whole, IBM posted records for revenue, at $103.6 billion; pretax profit, at $16.7 billion; and earnings per share, at $8.93. And the company said it expects earnings per share of at least $9.20 this year.

During a conference call about the financial results, Mark Loughridge, IBM's chief financial officer, said he expects the first half of the year to be more difficult from a business standpoint than the second half. Revenue will be relatively flat year-to-year in the first quarter but will then begin to grow, he predicted.

IBM said the strong dollar contributed to its drop in fourth-quarter 2008 revenue. When adjusted for currency fluctuations, total revenue fell just 1%, it added.

Software revenue grew 3% in Q4, but the company's Global Technology Services and Global Business Services units saw their revenues fall 4% and 5%, respectively — an indication that customers are pulling back somewhat on IT projects during the economic recession. However, IBM also reported new services engagements worth $17.2 billion, including 24 deals with price tags higher than $100 million.

IBM's Systems and Technology division also took a significant hit, with its revenue dropping 20% in the fourth quarter to $5.4 billion. With revenue declining in several key business units and overall, the vendor said it achieved the growth in net income by focusing on improving profit margins and investing in growth markets, although it also benefited from a lower tax rate.

The company's earnings announcement made no mention of layoffs, though there have been rampant rumors in recent weeks that IBM would resort to job cuts.

"Right now, we're in wait-and-see mode," Lee Conrad, national coordinator of the Alliance@IBM union local, said in an interview prior to the release of the earnings report. "We do know people have been told to look for other jobs."

Alliance@IBM, which officially is known as Local 1701 of the Communications Workers of America, is trying to organize workers at IBM. The union has called on IBM to take certain measures to avoid layoffs, such as suspending its stock buyback program, eliminating management positions and cutting executive pay. It also wants IBM to be transparent about where any job cuts take place and whether positions are being moved offshore.

If it does cut jobs, IBM would be only the latest of numerous tech vendors to do so as the worldwide economic crisis continues. For example, Oracle Corp. laid off an unspecified number of workers earlier this month. Microsoft Corp., which plans to announce its latest financial results on Thursday, was reported last week to also be considering a round of workforce reductions.

Forrester Research Inc. last week predicted that global IT spending would drop by 3% this year when measured in dollars, before rebounding in 2010.

Copyright © 2009 IDG Communications, Inc.

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