IBM, Intel And Others Report Mixed Earning

Since Jan. 2, Wall Street has provided one view of the IT sector's health. Tuesday, Jan. 17, provided another glimpse when IBM, Intel, Yahoo and other companies released financial results for the most recently completed quarter. Collectively, the earnings results suggest the IT economy is healthy, albeit not quite as robust as some believed, while it waits for emerging new technologies to recapture the magic of the PC era and subsequent great Internet buildout.

Take IBM, long the world's largest IT giant. The good news-bad news for IBM on Tuesday was its fourth quarter 2005 earnings jumped much higher than analysts expected. Still, its revenue declined more steeply than Wall Street predicted.

Revenue for the fourth quarter ended Dec. 31 totaled $24.4 billion compared with $27.7 billion in last year's fourth quarter. Big Blue's net income reached $3.2 billion, or $1.89 per share, compared with the $2.8 billion, or $1.67 per share, for the same period last year

Contributing to the revenue decline was the 18 percent dip in sales of the company's iSeries servers, along with a 5 percent decline in its mammoth Global Services business unit.

The larger-than-anticipated boost in earnings appears to stem from the company's decision in December 2004 to exit the PC business. It sold off that unit to the China-based Lenovo, shedding the overhead manufacturing and marketing costs associated with running that business. The move has enabled IBM to keep more of the profits that it reaps in other parts of its operations.

One of those areas is software. There, revenue for the quarter remained flat at $4.6 billion compared with last year. Despite that, company executives noted that growth in the Americas "reached double digits"--always a good sign.

There was better news concerning overall hardware revenue, which totaled $6.8 billion, up 6 percent. Leading the pack was the company's venerable zSeries mainframes. Sales improved up 28 percent, though Intel-based zSeries stayed flat. Trying to add in the silver lining, company executives noted that unit volumes for the xSeries were up 13 percent, largely on the strength of that product line's blade servers.

Accentuating the positive, IBM chairman Sam Palmisano said in a prepared statement that he felt the company had a "solid performance in systems, middleware and business-transformation services, which grew 25 percent for the year."

He added that the improvements in profit margins for the quarter can be traced to the company's focus on "more profitable, high-value segments of the IT industry, as well the greater emphasis on productivity and integration of its worldwide business model."

At Intel, executives provided a mixed assessment of their company's performance in the final calendar quarter of the year. On one hand, CEO Paul Otellini noted with pride that the company's performance amounted to the "best operating results in the company's history." Still, he conceded, the results, nonetheless, failed to meet expectations.

For the record, revenue was up 6 percent year-over-year to $10.2 billion, while earnings increased 16 percent year-over-year to $2.5 billion. That said, Intel expects growth to taper in 2006, and not by just a little. For the full year, Intel sales grew an impressive 13.5 percent to $38.8 billion. For 2006, the company is expecting sales growth to come in between 6 percent and 9 percent. Should it come in at the lower end of the spectrum, the growth would be less than half that of 2005.

In addition to growth, Intel is concerned about declining gross margins, which dipped slightly in the fourth quarter to 61.8 percent from the company's updated expectation of 63 percent.

While it frets over the fate of the desktop PC, long a huge source of revenue for the company, and inventories of chips in the OEM and reseller channels, Intel, nonetheless, has high hopes for new products, including Core Duo and Viiv. That will mean a heavy emphasis in 2006 on notebook devices, the digital home and office, and, like other tech giants, emerging markets.

Of those that reported financials Tuesday, Yahoo, perhaps, turned in the strongest performance, though it, too, fell short of lofty expectations. For the period, the company reported sales of $1.5 billion compared to $1.08 billion a year earlier. Earnings totaled a whopping $683 million, up from $373 million last year. Believe it or not, the results still missed analysts expectations by a few pennies per share.

For the year, revenue at Yahoo totaled $5.26 billion, up 47 percent over 2004. Net earnings totaled $1.9 billion, up from $840 million the year before.