The Wall Street Journal-20080118-IBM-s Outlook May Soothe Investors
Return to: The_Wall_Street_Journal-20080118
IBM's Outlook May Soothe Investors
International Business Machines Corp. forecast strong earnings growth and said continuing strength outside the U.S. and in the developing world should offset any potential slowdown among U.S. and European customers.
IBM's results may give investors greater confidence that, despite current market turmoil, some multinational tech companies can overcome domestic business weakness.
Mark Loughridge, IBM's chief financial officer, said in a conference call with investors that he expects earnings per share for the year will grow 15% to more than $8.20 a share from $7.18 a share last year. Many analysts had forecast per-share earnings would be under $8 a share, even after IBM pre-announced its unexpectedly strong fourth quarter on Monday.
Bob Djurdjevic, an analyst with Annex Research, Phoenix, said, "It's hard to find a blemish in IBM's results."
The optimistic earnings forecast came as IBM, based in Armonk, N.Y., formally reported its fourth-quarter results after previously announcing that per-share earnings rose 24% to $2.80 a share, about 7% higher than analysts had forecast, from $2.26 a share.
Earnings-per-share growth was much stronger than earnings growth because IBM accelerated its stock buyback program in June. It made a $12.5 billion repurchase of 118.8 million shares.
As reported, revenue rose 10%, with about six percentage points coming from foreign currency gains.
In a prepared statement, IBM chief executive Samuel Palmisano called it "a terrific fourth quarter and year," and noted that IBM's revenue, profit and cash set records.
Mr. Loughridge said that revenue in the U.S. rose only 2%, but Europe was up 16% and Asia was up 15%. Adjusted for currency gains, Europe was up 6% and Asia up 9%. For the full year, international revenue rose to 63% of IBM's total, up from 61% in 2006.
Growth in Asia outside Japan was particularly strong, rising 20%, and profits from those countries rose 40%. Mr. Loughridge said that 22% of IBM's revenue came from developing countries, and business in those places is growing at a 20% annual rate.
IBM's performance was led by its huge services business, where revenue rose 17%, or 10% adjusted for currency gains. Pre-tax income rose 19%. IBM's service-deal backlog at year-end was $118 billion, up $2 billion from the year-earlier level.
The hardware business revenue fell 4% due to the sale of a printer line. Software revenue grew 12%, or 6% after currency adjustment, and pre-tax income rose 21%, accounting for 44% of IBM's profits -- more than any other segment.
IBM said its revenue from the financial sector, which accounts for 28% of its business, grew 11% in the quarter or 5% adjusted for currency gains.
Mr. Loughridge said IBM's pension expenses will be about $1 billion less this year than they were last year.
---
William M. Bulkeley contributed to this article.
