IBM posts Q3 growth, sees IT spending increase

IBM posts Q3 growth, sees IT spending increase

IBM's third-quarter revenue and income has risen over last year's quarter amid signs the economy has stabilised.

IBM's third-quarter revenue and income has risen over last year's quarter amid signs the economy has stabilised. Growth in IBM's software and global services businesses offset declines in its hardware and financing units, as the company reported revenue of US$21.5 billion, 9 percent 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 First Call. IBM met the analysts' consensus earnings expectations, with income of $1.8 billion, or earnings per share of $1.02.

Product demand isn't yet up across the board, and it's too early to predict a rebound, but customers are expected to increase their IT investments in 2004, IBM Chief Executive Officer (CEO) Sam Palmisano said in a prepared statement accompanying IBM'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 percent 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 percent 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 non-core manufacturing operations.

Specifically, revenue from IBM's pSeries Unix servers grew 5 percent year over year despite supply issues with some low-end models. Sales of high-volume servers grew 40 percent, while revenue from its zSeries mainframes grew 1 percent 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 both the memory capacity, to 256G bytes, and the number of channels supported, to 512, Joyce said.

Revenue from IBM's storage hardware grew 6 percent thanks largely to its midrange offerings; sales of enterprise storage gear dropped 10 percent, IBM said. Revenue from its Personal Systems Group, including desktops and notebooks, grew 2 percent 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 hope to turn a profit from the Personal Systems Group in the fourth quarter, Joyce said.

IBM's software revenue grew 11 percent, to $3.5 billion, with DB2, WebSphere, Lotus and Tivoli all showing growth. Lotus' 9 percent 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 percent from a year earlier and DB2 sales up 14 percent, Joyce said.

Financial analysts expect IBM to report a profit of $1.51 per share for its fourth quarter, on revenue of $25.0 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.-- IDG News Service

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