UK flashback>”IBM winning, not trimming: Apple fine too”

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IBM winning, not trimming: Apple fine too

Wednesday 21st January 2009
Good day sunshine for IBM & Apple results. Courtesy:

Back in October, IBM said its 3Q net income rose 22%, to $2.05 a share, which was 3c higher than analysts’ consensus estimate. On a dollar basis, net income rose 20%, to $2.8bn. It also affirmed that it expects to earn $8.75/share for 2008, a 22% increase over 2007. Now the bellwether of global technology offers a strong performance in the fourth quarter with a solid 12% gain in net income. Apple confirms the good survival news with strong first quarter profits.

Analysts, who rarely celebrate a company suceeding, say the performance merely points to the success of IBM’s strategy in recent years, tilting toward higher-profit software and services and reducing its reliance on the computer hardware business, which suffers more in downturn economic cycles.

Hardware sales did drop 20% in the quarter, but that was more than made up by strong results from the company’s far-larger services and software groups.
Samuel J. Palmisano, IBM’s CEO, said in a statement that “a strong fourth quarter capped an outstanding year.” Despite the global economic turmoil, he also expressed confidence that the company could reach its earnings goal of at least $9.20 a share for 2009.

Analysts had predicted that IBM would announce as many as 10,000 staff cuts, or 3%  of the work force, to trim costs in a weak economy also got it wrong. For trimming Palmisano (right) is reported as writing in an e-mail message to employees Tuesday, is not the company’s current strategy. [Hurrah!]

“Many companies today are curtailing or drastically cutting spending and investment, even in areas that are important to their future. We are taking a different approach, not only because we have the financial strength to do so, but because we choose to manage IBM for long-term success.”

IBM’s solid profit performance came largely from higher profit margins in the services and software businesses that now account for more than 80% of the company’s earnings. In a difficult economic environment, the company has been convincing clients that its technology would deliver gains in efficiency. “Cost-saving offerings continue to sell,” said IBM CFO, Mark Loughridge.

IBM had a net income of $4.4bn, a 12% gain from a year earlier. Its quarterly earnings were $3.28/share, well above Wall Street’s consensus of $3.03/share. Profits benefited by 16c/share from foreign tax credits and the new research tax credit in the United States.

The company reported quarterly revenue of $27bn, down 6% reflecting weakness in hardware sales and a stronger dollar. In constant dollars, excluding the impact of currency swings, revenue slipped 1%.

In the fourth quarter, earnings for the 75 technology companies in the Standard & Poor’s 500-stock index are expected to drop 19% according to analysts’ forecasts compiled by Thomson Reuters a sharp retreat from the Wall Street consensus in early October, when analysts had forecast tech sector profits to rise 8% in the fourth quarter.

IBM however continues to progress quietly in the technology sector because of global reach andf business mix. About 40% of its revenue and 60% of profit come from products and services sold as licenses or contracts renewed yearly and most companies do not regard these as discretionary purchases.


Apple still gaining share
Apple also reports strong Q1 profits, again to the surprise of analysts, beating Wall Street’s expectations. Robust sales of iPods and laptops buoyed the company in a holiday shopping season that hurt many other technology and consumer electronics firms.  Apple said its quarterly profit jumped to $1.61bn, or $1.78/share, from $1.58bn, or $1.76/share, a year earlier. Revenue increased to $10.17bn, from $7.9bn. Analysts expected revenues of $9.74bn and profit of $1.39/share.

Apple “is gaining market share in every category and, given the premium price of their products, that is a significant achievement.” says Goldman Sachs analyst, David Bailey.

Apple said it sold 4.36m iPhone 3Gs in its holiday quarter, down from 6.9m phones during the 3Q, when the 3G version was released. But, that is nearly double the 2.3m iPhones that were sold in the year-ago quarter.

Some 2.5m Macs were sold, up from 2.3m in the quarter a year earlier, largely on the strength of its MacBook notebooks, updated in October. Apple is posting gains at a time when the overall market for personal computers is contracting. IPod sales jumped a healthy 3% from a year ago, to 22.7 m, driven largely by consumers in Europe and Asia.

Apple enjoys higher margins than many of its competitors for devices that consumers view as glamorous and better designed. Apple said gross profit margin last quarter was 34.7%, unchanged from a year ago, and the company benefited from falling prices for components like memory chips.

Apple, in the current quarter will reflect some slowness, projecting profits of 90 cents to $1 a share and sales of $7.6bn to $8bn

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