IBM Q4 income up; Palmisano cites investments

It reported net income for the fourth quarter of $2.7B

IBM today reported net income for the fourth quarter of 2003 of $2.7 billion, or $1.55 per share, up from $1 billion, or 59 cents per share, in the same period of 2002.

The company reported revenue growth of 9.4%, with $25.9 billion for the three months that ended Dec. 31. That's up from $23.7 billion in the prior-year period.

Earnings for the quarter rose 41% to $1.56 per share, up from $1.11 in 2002's fourth quarter. Earnings topped the consensus of $1.50-per-share forecast of analysts polled by Thomson Financial/First Call.

The prior-year period included $1 billion in after-tax charges, with $405 million of that related to the company's acquisition of PricewaterhouseCoopers Consulting, IBM said. Without the PWCC charges, earnings rose 16% over the prior-year period, the company said.

IBM's financial performance was built on investments made during the economic downturn that helped position it for a rebound, Chairman and CEO Sam Palmisano said in a statement about the results.

The purchase of PWCC in 2002 was the first step to building IBM's capabilities in business outsourcing, which IBM expects to be key to its future revenue growth and profitability, said John R. Joyce, the company's senior vice president and chief financial officer, during a webcast.

The company also bought Rational Software Corp. in February 2003 and Think Dynamics Inc. in May. Rational has become the fifth middleware brand within IBM's software group, joining Lotus, WebSphere, Tivoli and DB2, and the Think Dynamics automated server provisioning business has been integrated into the Tivoli division.

Revenue from the middleware brands increased 14% to $3.4 billion in the fourth quarter, IBM said.

This is likely to be a good year, as the IT industry begins its next growth cycle, Joyce said. The industry stabilized in 2003 after several years in decline, and IBM is in a good position to take advantage as growth begins, he added.

IBM's on-demand computing strategy gives the company a competitive advantage, Joyce said. On-demand service grants companies access to computing resources, both capacity and software, as they need them, meaning they pay only for services they use.

Revenue from IBM's Global Services group rose 8%, and IBM said it signed $17.3 billion in services contracts in the fourth quarter. That included three contracts of more than $1 billion and 18 worth more than $100 million.

Hardware revenue grew 12% year on year, and the high-end zSeries range, particularly the z990 products, "has legs going into 2004," Joyce said. XSeries Intel-based servers and pSeries Unix-based servers also saw increased revenue.

The Personal Systems Group saw revenue rise 16%, to $3.5 billion, as increased sales of mobile products offset lower prices. ThinkPad sales have been strong, with revenue up 35% year on year, compared with a drop of 6% in desktop revenue.

The company is being forced by competitive pressure to reduce prices for lower-end servers and PCs in Asia and Europe, but the currency differences will mean there is little effect on the bottom line, Joyce said.

IBM said it experienced growth in all regions. In the Americas, fourth-quarter revenue from continuing operations rose 4% from the same period in 2002, to $10.6 billion, while revenue in Europe, the Middle East and Africa rose 17% to $9.1 billion. Asia-Pacific revenue rose 13% to $5.4 billion. The percentage increases, however, were affected by currency fluctuations; if currencies were constant, the increases would have been lower, at 1% for the Americas and Europe, the Middle East and Africa and 3% for Asia-Pacific.

Copyright © 2004 IDG Communications, Inc.

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