Report sends shares down

Friday, April 15, 2005 | 9:51 a.m.

IBM, the world's largest computer maker, reported disappointing first-quarter earnings Thursday, setting off a sharp sell-off of its shares in after-hours trading.

The company reported sales from continuing operations of $22.9 billion, up 3 percent from $22.2 billion in the same period in 2004.

Earnings missed analysts' expectations of 90 cents a share on revenue of $23.6 billion. Profits from continuing operations reached $1.41 billion, or 85 cents a share, compared with $1.36 billion, or 79 cents a share, a year ago.

In after-hours trading, the company's stock fell $4.30, or 5 percent, to $80.31. Shares of IBM closed at $83.64 in regular trading.

"The miss was pretty widespread across IBM itself," said Richard Petersen, an analyst with Pacific Crest Securities, which rates IBM stock as "outperform" or a "buy." He noted that the breadth of IBM's struggles suggests the problem is not specific to the company. "For them to miss by that amount suggests it's more than just IBM"

Despite indications in past months of a technology sector recovery, industry executives have noted that corporations were cautious about increasing spending to upgrade systems.

IBM said that one area of unexpectedly weak demand was in Europe, with revenue down 8 percent in Germany, 7 percent in Italy, 3 percent in France. Revenue was down 4 percent in Japan. Those countries represent 25 percent of sales.

The performance of the services business was considered the most disappointing. Sales in that division rose 6 percent to $11.7 billion compared with the same period a year ago, but Loughridge said sales would have been higher had the company done a better job at securing short-term consulting contracts.

The failure to sign more such contracts also had a negative impact on profit margins in the services business. Loughridge said the company had hired more consultants to accommodate a larger services business, and as a result, it was carrying larger fixed labor costs.

Loughridge said IBM was taking steps to improve that portion of its business, and those steps might involve restructuring.

That revamping could translate to layoffs, said A.M. Sacconaghi Jr., an industry analyst with Sanford C. Bernstein & Co., which has a market perform or hold rating on the IBM stock.

The pipeline of new short-term contracts, however, is now about 30 percent better than at the start of the quarter.

The earnings report had been scheduled for release next Monday. The company did not explain the reason for the early release in its earnings call with analysts.

John Bukovinsky, a spokesman, said the company had completed its internal review of the numbers and wanted to get the information to investors as soon as possible.