Big Blue handily beat estimates in the fourth quarter.
After market close Wednesday, IBM (NYSE: IBM) reported fourth quarter earnings of $2.1 billion, or $1.12 per share. First Call's survey of 24 analysts predicted a profit of $1.06 per share.
Shares of IBM closed Wednesday's regular trading down 1/4 to 115 1/2, prior to the earnings report.
Fourth quarter revenue of $24.2 billion represented a 4 percent slide year-over-year, with gross margins falling to 36.4 percent from 39 percent. IBM had previously warned Y2K fears would hurt sales.
"However, the Y2K issue should not overshadow the fact that 1999 was a good year for IBM," said Louis Gerstner, chairman and CEO.
IBM Global Services saw a 7 percent revenue increase, excluding maintenance contracts. Including maintenance, services revenue grew 2 poercent to $8.7 billion. The company signed $10.3 billion in services deals in the fourth quarter and ended 1999 with a services backlog of $60 billion.
Hardware revenue fell 11 percent year-over-year to $10.2 billion in the fourth quarter, with gross margins falling to 26.6 percent from 34.2 percent. IBM blamed Y2K for lower demand for System/390, AS/400, RS/6000 and PC systems. The company saw higher revenue from Netfinity servers and RS/6000 mid-range servers. IBM Microelectronics revenue rose "substantially" because of higher custom logic shipments.
Software generated $3.6 billion in revenue, a 2 percent improvement year-over-year, with gross margins rising to 83.4 percent. Middleware business improved 8 percent.
Financing revenue rose to $915 million, a 19 percent gain from a year earlier. Enterprise investments and other divisions saw a 13 percent revenue slide to $687 million, as IBM pulled out of some businesses.
IBM bought back $2.1 billion in stock in the fourth quarter, reducing the average number of shares outstanding to 1.79 billion compared to 1.84 billion in the year-ago period.
For the full year, IBM earned $7.7 billion, or $4.12 per share, on revenue of $87.5 billion.