International Business Machines Corp. reported higher fourth quarter profits, bolstered by its strong services and software sales.
The worlds largest computer maker said net income rose about 18 percent to $2.02 billion in the quarter from $1.71 billion in the 1995 quarter. Revenues were up 6 percent, to $23.1 billion, from $21.9 billion a year ago.
Earnings per share rose to $3.93 from $3.09, since IBM had 7 percent fewer shares outstanding in the quarter due to stock buybacks. Wall Street analysts had expected profits of $3.88 a share on average, according to First Call, which tracks earnings estimates.
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They were mixed results, software and services were great, said David Takata, a Gruntal & Co. analyst.
He said weak mainframe computer revenues were disappointing. Some analysts had been predicting better mainframe revenues in the quarter due to strong new products.
The sluggish mainframe sales and lower-than-expected restructuring costs, however, lead some analysts to call the quarter a disappointment after attending a meeting of IBM executives and analysts in New York.
It was disappointing, but not disastrous, said Barry Bosak, a Smith Barney analyst. They are facing challenges, (but) it is not pulling the company down like it was in the late 1980s and early 1990s. Wed like to see more growth and we are not getting it.
For the quarter, IBMs restructuring costs were $200 million, less than previous estimates of between $300-$400 million. IBM said restructuring costs in 1997 would reach about the same level as total costs of $720 million in 1996.
G. Richard Thoman, IBMs chief financial officer, told analysts IBM spent less than planned on restructuring mostly because of its European operations. In Europe once again, we were unable to achieve success in voluntary (staff) reductions, he said referring to IBMs employee buyout plans.
The Armonk, N.Y.-based computer maker said service revenues jumped 22 percent in the quarter and personal computer sales rose, but sales of mainframes fell and RS/6000 workstations were flat.
Software revenues rose 4 percent in the quarter, and hardware sales increased 2 percent. IBM said its sales of Lotus Notes reached a record of 1.5 million licenses in the quarter, bring the total of Notes licenses to 9 million. PCs were also a bright spot for IBM, but they carry lower product margins.
Thoman said IBMs PC business showed continued improvements, with its profit margin closing in on Compaq Computer Corp.s margins, which are about 23 percent of revenues, the best in the industry. But he declined to give provide specifics about unit shipments or gross margins. IBMs total gross profit margins fell in the quarter to 40.3 percent of revenues vs. 41.7 percent a year ago.
We showed good growth in the fourth quarter despite a difficult year-over-year comparison, continued weakness in Europe and a greater-than-expected currency impact, IBM chairman Louis Gerstner said in a statement.
Although we still face many challenges, IBM is a much different company than it was only a few years ago, he said, noting IBMs services business accounted for 21 percent of revenues at the end of 1996 compared to 13 percent in 1993.
The impact of converting revenues received in foreign currencies into dollars erased 3 percentage points from the fourth-quarter revenue gain, IBM said. That compared with about a two point positive impact in the 1995 quarter.
Net earnings for the year rose to $5.4 billion, or $10.24 a share, from $4.2 billion, or $7.23 a share, in 1995. The 1996 results included a charge for research and development from the acquisition of Lotus Development Corp.
Full-year revenues rose 5.6 percent to $75.95 billion from $71.94 billion.
In a break with tradition, IBM released its results after the stock market closed rather than before the market opened. The stock closed up $1 at $168 in consolidated trading on the New York Stock Exchange.
By region, revenues in North America rose 11 percent to $9.6 billion in the fourth quarter, Asia-Pacific rose 6 percent to $4.3 billion and Latin America gained 4.0 percent to $1.1 billion.