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IBM, Sun and AMD Earnings Hurt Tech Sector's Prospects

But Big Blue signs service contracts worth $18 billion, a signal corporate customers are starting to spend again.

January 17, 2003|P.J. Huffstutter and Alex Pham | Times Staff Writers

Just days after Intel Corp.'s quarterly results suggesting the technology sector finally was rebounding, a string of earnings reports from tech heavyweights Thursday threw cold water on prospects for a quick recovery.

Sun Microsystems Inc. posted its largest net loss ever and Advanced Micro Devices Inc. reported its sixth consecutive quarterly loss. IBM Corp. was in the black, but its profit declined for the sixth quarter in a row. Even Microsoft Corp., which posted record revenue, warned of slowing growth.

IBM reported fourth-quarter net income of $1 billion, or 59 cents a share. That's down 56% from the $2.3 billion, or $1.33, the company earned in the fourth quarter of 2001. Revenue in the last three months of the year rose to $23.7 billion, up from $22.1 billion in the year-ago period. Excluding charges, IBM would have earned $2.3 billion, or $1.34 a share.

For the full year, the Armonk, N.Y.-based technology giant earned $3.6 billion, or $2.06 a share, compared with net income of $7.7 billion, or $4.35, in 2001. Revenue dipped to $81.2 billion from $83.1 billion.

Despite the decline, IBM "showed very good results in a very poor economy," said Tom Bittman, vice president and research director for Gartner Inc., which does not own IBM stock.

The fact that IBM signed $18 billion worth of service contracts during the quarter is a sign that corporate customers are beginning to spend again, he said. "That bodes well for the coming year, both for IBM and for the economy overall."

IBM Chief Financial Officer John Joyce told analysts he expects the company to meet Wall Street's first-quarter forecasts of 10% revenue growth and a 9% boost in earnings per share.

IBM shares closed Thursday at $86.05, down $1.54 on the New York Stock Exchange before the results were released. The stock dropped to $84 in after-hours trading.

Sun posted its massive loss after taking non-cash charges of nearly $2.3 billion because of investment losses.

For the fiscal second quarter ended Dec. 29, the Santa Clara, Calif.-based server company posted a loss of $2.3 billion, or 72 cents a share, compared with a loss of $431 million, or 13 cents, a year earlier.

The current loss includes $2.1 billion in goodwill charges tied to acquisitions, including the deal in April for data-storage company HighGround Systems Inc. Revenue dropped 6.5% to $2.9 billion, from $3.1 billion in the same period last year.

Without one-time charges and special items, the company would have earned $10 million, just about breaking even.

In a conference call with analysts, Sun Chief Executive Scott McNealy stressed the continuing need to cut costs and bolster sales. He emphasized that the company has more than $5 billion in cash and marketable securities on its balance sheet.

"I'm a maniac on cash," McNealy said. "Cash is king."

Executives declined to discuss Sun's outlook for its third quarter. Sun's shares closed Thursday at $3.70, down 17 cents on Nasdaq. They dipped to $3.49 in after-hours trading after the release of the earnings report.

AMD lost $855 million, or $2.49 a share, on sales of $686 million in its fourth quarter, which ended Dec. 29. In the same period last year, the Sunnyvale, Calif.-based firm lost $15.8 million, or 5 cents a share, on $952 million in revenue.

For the full year, the No. 2 chip maker had $2.7 billion in sales, down 31% from 2001, and a net loss of $1.3 billion, or $3.81 a share. In 2001, it lost $60.6 million, or 18 cents a share.

AMD shares fell 25 cents to $7.20 on the NYSE, then slid to $6.70 in after-hours trading after the earnings report was released.

Nearly 73% of AMD's fourth-quarter loss stemmed from one-time charges, most of them tied to AMD's plans to lay off 2,000 employees, or 15% of its workforce, and consolidate facilities in a bid to cut $800 million in quarterly expenses.

Without the charges, AMD lost $217.4 million from operations, or 68 cents a share.

The loss still was higher than investors had anticipated, with Wall Street analysts forecasting a 42-cent operating loss, according to Thomson First Call.

"They knew they were going to take a bath last quarter," said David Wu, an analyst with Wedbush Morgan Securities, which does not own AMD stock. "But they'll do better in the first quarter this year because of their richer product mix."

For the coming months, AMD projected higher revenue from PC microprocessors but flat overall sales.

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