IBM CFO Says No Recovery Until Second Half

But annuity revenues to buffer impact

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IBM beat expectations slightly for its fiscal fourth quarter ended Dec. 31 and joined other vendors in predicting that the economic recovery won't begin until the second half.

"There will be a slow recovery that will start mid-year," said IBM CFO John Joyce in an earnings conference call with analysts. "The first half doesn't appear to have a different economic outlook than the year we just came through."

IBM had net income of $2.3 billion, or $1.33 per share, for the quarter, down 10 percent from the $1.48 per share, or $2.7 billion, earned a year earlier. Analysts had predicted earnings of $1.31 for the quarter. Fourth-quarter revenue reached $22.8 billion, down 11 percent from the $25.6 billion in sales for the year-earlier period.

Still, he said IBM will largely be shielded from the continuing sluggish global economy and will meet next year's forecasts because "half our earnings for 2002 are already under contract for the year."

He said those earnings under contract were primarily in the form of service contracts, maintenance and monthly software license fees.

For the quarter, software and services were the big winners for IBM. He said new contract signings for IBM Global Services totaled $15 billion for the quarter even as IBM Global Services revenue declined 1 percent to $9.1 billion. Total service backlogs at year-end totaled $102 billion, he said.

Software revenue increased 6 percent compared with the year-earlier period, reaching $3.8 billion.

But PCs and IBM's OEM business were the biggest drag on IBM earnings for the quarter. PC revenue was down 31 percent from fourth-quarter 2000 to $2.9 billion. The technology business, which includes OEM, was down 31 percent to $2.4 billion. The two segments totaled losses of about $300 million.

Joyce said 66 percent of IBM's U.S. PC sales were direct during the fourth quarter.

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