IBM Remains Cautious About Turnaround Despite 3Q Earnings Jump

IBM's earnings reached $1.8 billion, compared with $1.7 billion for the year-earlier period while sales grew to $21.5 billion, up from $19.8 billion.

"Although IT spending has stabilized, it's still too early to predict a turnaround," said John Joyce, IBM's senior vice president and CTO during a conference call with analysts.

IBM Chairman and CEO Sam Palmisano said in a prepared statement: "We are beginning to see signs that the economy has stabilized. ... Although it is too early to say that a rebound is at hand, we are confident that we will benefit from both a pickup in IT spending and an economic recovery."

IBM's Personal Systems Group continued to drag down overall profitability, with the group recording a $50 million loss during the third quarter on revenue of $2.84 billion. Joyce said the losses were primarily in desktops. Unit sales for desktops were up 8 percent, but pricing pressure was fierce and revenue was down 6 percent. ThinkPad revenue for the period was up 8 percent, he said.

"Our goal for the fourth quarter [in the Personal Systems Group] is to be profitable," he said.

While overall hardware revenue was down 1 percent from a year earlier, IBM fared better in its Systems Group, with pSeries servers sales up 5 percent, xSeries servers up 11 percent and iSeries servers up 5 percent over third-quarter 2002.

IBM's small and medium business initiatives were paying off as well. SMB sales, most of which go to accounts with 1,000 or less employees, reached $4.8 billion for the period, up 16 percent from a year earlier.

IBM's software sales grew 11 percent to $3.5 billion for the quarter, while IBM Global Services revenue jumped 17 percent to $10.4 billion. Joyce said the software and services revenue now accounts for 65 percent of IBM's total revenue. He noted that IBM Global Services signed $15.4 billion in outsourcing deals during the period.

He cautioned, however, that "overall IT spending is good, but not robust. Large enterprises remain cautious," he said.