Financial round-up: IBM, Nortel, Network Associates report earnings

This week's string of earnings announcements continued today as IBM, Nortel Networks Corp. and Network Associates Inc. reported their quarterly earnings. IBM and Nortel reported that their revenues and earnings were down for the period; Network Associates reported that its revenue was up.

IBM today said its fourth-quarter revenue dipped 11% compared with a year ago, to $22.8 billion. Profits declined 13%, to $2.3 billion.

"This was a solid finish to a demanding year," IBM Chairman and CEO Louis Gerstner Jr. said in a statement released after the close of U.S. financial markets.

Gerstner said IBM's new Regatta Unix servers, which began shipping late in the quarter, are "sold out" and that the company's yearly mainframe revenue increased for the first time since 1989.

On the down side, Gerstner said PC sales were slow, and its OEM business continues to be weak.

"Business conditions remain difficult as we enter the new year, although we believe that our business will strengthen as we move through the year," Gerstner said in the statement.

IBM's $1.33 earnings per share for the quarter were slightly higher than the $1.32 expected by a consensus of analysts surveyed by First Call/Thomson Financial.

Although revenue was less than expected, the company's earnings per share were on track, according to John Joyce, IBM senior vice president and chief financial officer, in a conference call about the quarter's results. Earnings were aided substantially by the company's Z series mainframes, P series Regatta servers and software, he said.

The technology/OEM division, which includes selling storage systems and chips to other manufacturers, and the PC division lost a total of $500 million last year, Joyce said.

"Customers are still taking a careful look at all investments," he said, adding that they are spending on applications that offer the fastest return on investment.

Joyce said IBM signed a number of large global services contracts late in the quarter -- too late to impact revenue figures for last year, but which "will contribute to a pickup in 2002." Global services revenue was up 1% while contract signings were up 22%, he said. The company says it has a $102 billion backlog of services ordered but not yet delivered and paid for.

And, despite the dot-com debacle, the company's Web hosting business grew 45% last year.

Meanwhile, Toronto-based Nortel reported that in the fourth quarter, it had revenue of $3.46 billion, down sharply from the $8.2 billion it reported in the year-ago quarter. Pro forma net loss from continuing operations for the quarter totaled $506 million, or 16 cents per common share. That compared with pro forma net earnings a year ago of $929 million, or 29 cents per common share on a diluted basis.

In a statement, the company said that the pro forma net loss for the fourth quarter excluded $482 million in acquisition-related costs, an after-tax loss on the sale of businesses of $215 million and special charges of $605 million after tax, related to previously announced workforce reductions and facilities closures.

Overall, Nortel reported a net loss for the quarter of $1.83 billion, or 57 cents per common share.

"Revenues for the fourth quarter of 2001 reflected the reduced levels of spending in the global telecom industry, which impacted all of our businesses," said Frank Dunn, Nortel's president and CEO. "Our bottom-line results, compared to third quarter of 2001, were driven by a lower cost structure due to the impact of our resizing efforts and improved gross margin, reflecting our focus on our high-value portfolio."

Terry Hungle, the company's chief financial officer, said, "Revenues for the fourth quarter were in line with our expectations, while our reported bottom-line results were better than expected due to gains on sales of businesses which closed late in the quarter. Our cash management focus resulted in a strong cash balance, which increased from the third quarter."

For the year 2001, revenue from continuing operations totaled $17.5 billion, down from $27.9 billion in 2000. With acquisition costs and special charges included, Nortel Networks reported a net loss for the year of $27.3 billion, or $8.56 per common share.

Looking ahead, Nortel officials said they don't expect an immediate rebound in business.

"We expect customers to move cautiously in the near term," Dunn said. "We currently expect our revenues in the first quarter of 2002 will be lower than the fourth quarter of 2001 by approximately 10%. For the year 2002, we expect a gradual growth in revenues beginning in the second quarter" and a return to profitability in the fourth quarter.

Santa Clara, Calif.-based Network Associates Inc. announced that for the fourth quarter ended Dec. 31, 2001, its consolidated net revenue totaled $259 million. Excluding McAfee.com, the company reported net revenue of $241 million, while on a consolidated basis, its fourth-quarter net loss was $3.5 million, or 2 cents per share. Pro forma net earnings for the quarter, excluding McAfee.com, were $40.5 million, or 23 cents per share.

For the full year, consolidated revenue was $834 million, a 12% increase over 2000. Excluding McAfee.com, annual revenue totaled $772 million. The consolidated net loss for the year was $99.3 million, or 72 cents per share, while consolidated pro forma earnings were $25.9 million, or 15 cents per share.

In the fourth quarter, the company said, it generated $53 million in cash from operations, ending the quarter with cash and marketable securities totaling $943 million.

"It has been an incredible year for Network Associates, and I'm very proud of the team for delivering against the commitments I made a year ago," George Samenuk, chairman and CEO of Network Associates, said in a statement.

"In 2001, we returned to profitability and positive cash flow, hired senior executives to lead each of the key regions around the world and eliminated redundancy across product groups," Samenuk said. "We still have a lot of work to do, but we are well positioned for a great 2002."

Looking to the fiscal year ahead, Network Associates said it expects consolidated net revenue in the first quarter of 2002 to be $209 million to $219 million, and excluding McAfee.com, between $190 million and $200 million. That's in line with consensus estimates.

For all of fiscal 2002, the company is raising its guidance by $60 million and expects revenue, excluding McAfee.com, to be $860 million to $890 million and consolidated revenue to be in the range of $940 million to $980 million.

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