April 15, 2004 6:00 PM PDT

Big Blue earnings meet expectations

Tech industry bellwether IBM reported first-quarter earnings Thursday that met expectations amid solid revenue growth in its hardware, software and services divisions.

Big Blue posted earnings from continuing operations of 93 cents per share for the quarter, up 18 percent year over year and in line with analysts' average expectation, according to research firm Thomson First Call. First-quarter revenue from continuing operations was $22.2 billion, a rise of 11 percent from the first quarter of 2003 and above analysts' average forecast of $21.9 billion.

Currency effects helped stimulate IBM's revenue hike. After adjusting figures for currency, revenue grew by 3 percent.

In a conference call, IBM Chief Financial Officer John Joyce indicated that companies are opening up their pocketbooks for technology purchases. "When we reported fourth-quarter results three months ago, we told you that we were starting to see improvement in the IT environment," Joyce said. "This quarter's results reaffirm this view."

The results boost hopes that a stronger recovery in technology spending is under way. Chipmakers Intel and Advanced Micro Devices, as well as data storage specialist EMC, recently have reported improved financial results. Research firm IDC predicts that spending on information technology will rise by 5 percent worldwide this year, after growth of 2 percent in 2003 and declines the previous two years.

"The IBM team entered the first quarter with good momentum and delivered a solid first quarter," IBM CEO Sam Palmisano said in a statement. "Behind the results, clients are increasingly turning to IBM to help them become on-demand businesses. This is creating demand for integrated services and high-performance IT infrastructure, based on open industry standards--areas where we have chosen to lead."

The company has continued to push its vision of "on-demand" computing, which involves letting customers pay for computing resources as they consume them. The initiative is similar to efforts from rivals Sun Microsystems and Hewlett-Packard, which are also working to make computing more like a utility service.

IBM said revenue from its Global Services unit, including maintenance, increased 9 percent, to $11.1 billion, in the first quarter. Hardware revenue from continuing operations rose 16 percent, to $6.7 billion, in the quarter, while software revenue climbed 11 percent, to $3.5 billion, the company said.

Big Blue's microelectronics business continues to struggle. IBM has combined its technology group, which houses its chip business, with its systems group, which sells server computers and storage gear.

Although the combined unit delivered $170 million in profits, the former technology group was a drain on those earnings, Joyce said. He said the company expects the former group to be profitable this year, based on factors such as increased demand.

Big Blue has been expanding its market leadership in the server category, with its mainframes business still showing sales growth.

The computing giant's services unit continues to move into the so-called business process outsourcing arena, which involves a company farming out tasks such as human resources administration and procurement.

IBM is acquiring India-based Daksh, a 6,000-person company that offers call center services. And IBM recently announced that it would take on after-sales service operations for Royal Philips Electronics in North America--a contract that puts IBM in the role of overseeing television repairs.

Overall, IBM is portraying itself as a soup-to-nuts technology and business consulting partner. "Increasingly, what our customers want is for someone to help them with their noncore business processes, so that they can focus on the processes that differentiate them in the marketplace," Joyce said in the conference call.

"This work is beyond the scope of traditional...IT providers," Joyce said. "Our competitive advantage is a combination of the breadth of our offerings and our ability to bring them all together."

 

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