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 NEWSIBM posts Q4 revenue growth, but income drops By Stacy Cowley January 16, 2003 4:51 pm PT update IN A FOURTH quarter that included expensive charges primarily related to its acquisition of PricewaterhouseCoopers Consulting (PwCC), IBM Thursday posted growing revenue but declining income, which Chairman and Chief Executive Officer Sam Palmisano characterized as strong in "one of the most challenging years in business."
Revenue from continuing operations for the quarter, which ended Dec. 31, was $23.7 billion, up 7 percent from $22.1 billion in the year-ago quarter. The consensus estimate of analysts polled by Thomson Financial/First Call had been for $1.30 in per-share earnings. IBM's actual per-share earnings from continuing operations were $1.11; however, excluding the PwCC charges, per-share earnings would have been $1.34. Wall Street's estimates did not include the charges, IBM Chief Financial Officer John Joyce said during a conference call with analysts. PwCC's effect on IBM's bottom line was immediately clear this quarter: After several quarters of slight declines, IBM's Global Services unit (into which PwCC was integrated) generated 17 percent year-over-year revenue growth, to $10.6 billion. Factoring out the PwCC acquisition, Global Service's revenue dropped 1 percent. New contract signings also surged sequentially, from $9 billion in the third quarter of 2002 to $18 billion in the fourth. That total includes a seven-year, $5 billion outsourcing agreement with J.P. Morgan Chase & Co., under which IBM will absorb several thousand J.P. Morgan employees and assume responsibility for a wide array of the financial services firm's IT needs. The biggest drop in IBM's revenue was in its Global Financing unit, where revenue declined 11 percent from last year. Hardware revenue eked out a 1 percent increase, while software revenue remained flat. After an extended period of losses, IBM's PC unit pulled itself back into the black. Although year-over-year revenue was flat in the company's Personal and Printing Systems Group, the unit delivered a $47 million profit during the quarter. "PCs moved into the growth category," Joyce said. Regionally, the U.S. market was slightly stronger than those in Canada and Latin America, Joyce said, while Europe, Germany and the U.K. remained "particularly weak." The Asia-Pacific market is divided, he said: While Japan, which accounts for the majority of IBM's business in the region, has an economy that "remains fragile and lacks momentum," growth is good in China and South Korea. IBM also reported its full-year 2002 results, showing a significant decline in income from continuing operations. IBM's reported income plunged from $8.1 billion in 2001 to $5.3 billion in 2002. However, that drop includes $1.5 billion in charges for PwCC's integration and restructuring in IBM's microelectronics division. Revenue for the full year was down 2 percent, at $81.2 billion, following 2001's $83.1 billion total. For 2003, IBM remains cautious and does not expect a pickup in demand before the second half of the year at the earliest, Joyce said. "Strategists and analysts are still undecided about the timing of a turn, but there is greater confidence that the tech sector has steadied. Now the question seems to be more one of how strong the recovery will be," Joyce said. IBM expects continued pricing pressure and a slow market for intellectual-property sales, he said. Stacy Cowley is a New York-based correspondent for IDG News Service, an InfoWorld affiliate. SPONSORED WHITE PAPERS 
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