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EARNINGS ROUNDUP

IBM Posts 13% Profit Gain on New Machines, Chip Trends

January 18, 2006|From Associated Press

A new line of mainframe computers and positive trends in the chip business boosted fourth-quarter results at IBM Corp. on Tuesday. Net profit rose 13%, beating Wall Street expectations.

The report also provided a crucial update on the health of IBM's services business, which accounts for more than half of Big Blue's revenue. IBM saw a shortfall in long-term services contracts signed in the fourth quarter that was not as severe as some analysts had feared.

In the last three months of 2005, IBM earned $3.19 billion, or $1.99 a share, on revenue of $24.4 billion. The results were pulled down 10 cents a share by a $267-million charge stemming from IBM's recent decision to freeze its pension plan for U.S. workers in 2008 and by 2 cents a share because of an accounting change.

Leaving those figures out, the $2.11 in earnings per share easily beat the $1.94 consensus of analysts surveyed by Thomson Financial. However, IBM fell short of the revenue forecast of $25.5 billion.

In the same period in 2004, IBM had registered a net profit of $2.83 billion, or $1.67 a share, on revenue of $27.7 billion. However, subtracting the performance of IBM's personal computer division, which was later sold to China's Lenovo Group Ltd., earnings would have been $2.77 billion, or $1.64 a share, on $24.7 billion in revenue.

That means IBM saw a 1% drop in revenue in the fourth quarter. Mark Loughridge, IBM's chief financial officer, said the company would have seen 3% growth if not for currency fluctuations.

Loughridge said IBM had "headwinds to work through," including pension costs and a strengthening dollar, which can hurt U.S.-based exporters. Still, he said, Armonk, N.Y.-based IBM is likely to exceed Wall Street's current estimates of $5.66 a share in 2006 by as much as 12 cents. The revenue forecast is $93.4 billion.

IBM shares fell 17 cents to $83 before the earnings report was released. In after-hours trading, IBM shares rose 11 cents to $83.11.

In all of 2005, IBM earned $7.93 billion, or $4.87 a share, on revenue of $91.1 billion. In 2004, profit was $7.48 billion, or $4.38 a share, on revenue of $96.3 billion.

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