IBM Profits Exceed Estimates While Revenues Decline

For the quarter ended Dec. 31, IBM’s net income totaled $3.2 billion, or $1.99 per share, compared with $2.8 billion, or $1.67 per share, for the year earlier period. Revenues totaled $24.4 billion compared with $27.7 billion for the 2004 fourth quarter.

Analysts had estimated earnings of $1.94 per share on revenues of $25.5 billion for IBM’s fourth quarter.

IBM attributed its revenue decline largely to the sale of its PC business to Lenovo last year. Without the impact of the PC divestiture, revenues were up 3 percent, IBM said.

Hardware revenues for the quarter totaled $6.8 billion, up 6 percent, with zSeries up 28 percent, pSeries up 4 percent and iSeries down 18 percent. IBM said xSeries sales were flat, while storage was up 24 percent.

In a call with analysts following the earnings release, IBM’s CFO Mark Loughridge said that xSeries revenues were flat largely because of increased pricing competition. He said, however, that xSeries server unit volumes were up 13 percent for the quarter led by a 41 percent growth in blade servers over fourth quarter 2004.

Software revenues for the period were $4.6 billion, flat compared to the 2004 period. “But we had double-digit software growth in the Americas,” he said.

Global Services revenue for the period decreased 5 percent to $12 billion. Loughridge said that IBM plans to “increase our investments in midmarket opportunities” in services in 2006.

Loughridge said that 37 percent of IBM’s profit now comes from software, 35 percent from services and 28 percent from hardware.