IBM reported Tuesday third quarter earnings of $1.5bn (.91bn), or $1.56 a share, on revenue of $20.1bn (£12.2bn). Wall Street was expecting earnings of $1.53 a share.
In the same quarter a year ago, IBM reported earnings of $1.4bn (£.85bn), or $1.35 a share, on revenue of $18.6bn (£11.34bn). Revenue for the quarter was up 8 percent compared to a year ago, but would have been up 11 percent without currency effects.
Shares of IBM raced to a 52-week high Monday prior to giving way to profit taking. IBM gained in anticipation of a strong report. IBM CEO Louis V. Gerstner, Jr. said in a statement that the company saw "substantial improvement across nearly all parts of our product line." IBM said it saw strong growth in its servers, services and software units. PC revenue was flat compared to a year ago, and the semiconductor business continued to be hit hard by an industry downturn.
The company, however, sounded a cautionary note. "While IBM is entering the fourth quarter with some real momentum," said Gerstner. "We are facing a number of significant short-term issues, including an uncertain global economic environment, ongoing weakness in some parts of Asia and Latin America, and continued price pressures in semiconductors."
Douglas Maine, chief financial officer, echoed the caution in a conference call with analysts. Because of Asia, the chip sector and other wildcards analysts shouldn't raise fourth quarter earnings estimates.
Maine added that IT spending will be flat to up next year. He also said analysts were getting ahead of themselves raising estimates because of the strength of the dollar. For the fourth quarter, analysts are expecting earnings of $2.42 a share with earnings of $6.50 a share for the year. "We are well positioned, but I think the issue remains Asia Pacific and Latin America," he said.
On Monday, SoundView Technology Group analyst Gary Helmig raised his fourth quarter earnings outlook 10 cents to $2.46 a share. The analyst made the change to reflect the weaker U.S. dollar. "Even though had a good third quarter we should walk before we run," said Maine, referring to a rebound in the global economy.
Although IBM was cautious about upcoming quarters, the third quarter results were strong. Revenue from North America were $10bn (£6.1bn), up 15 percent compared to a year ago. Sales from IBM's Europe/Middle East/Africa unit totalled $6.1bn (£3.72bn), up 16 percent. And Asia-Pacific sales declined 16 percent to $3.2bn (£1.95bn) and revenue from Latin America fell 6 percent to $840m (£512m). Total hardware sales grew 4 percent to $8.7bn (£5.3bn), but PC revenue was flat. Maine said the company was working on streamlining PC manufacturing and on-time delivery.
Services revenue was $5.8bn (£3.53bn), up 23 percent from a year ago. Software revenue was $3.2bn (£1.95bn), up 5 percent compared to a year ago.
For the quarter, IBM had gross profit margins of 37.2 percent, compared with 38.2 percent a year ago.