IBM Revenue Falls Short in Q4IBM Revenue Falls Short in Q4

IBM failed to meet Wall Street revenue expectations for the fourth quarter, missing the mark by $1 billion. But the Armonk, N.Y., computer hardware and services company managed to narrowly beat analysts' profit expectations in the down economy.

IBM reported Thursday that in the fourth quarter ended Dec. 31, revenue was $22.8 billion, 11% less than the $25.62 billion it brought in for the fourth quarter of 2000. Net income for the same period was $2.33 billion, 13% less than the $2.67 billion reported a year ago. Earnings per diluted share were $1.33, compared with $1.48 per share in the corresponding quarter last year. Analysts polled by Thomson Financial/First Call had predicted $1.32 a share on about $1 billion more in revenue.

Things looked a little brighter for the whole year. Revenue in 2001 was $85.9 billion, only 3% less than the $88.4 billion the year before. Net income for 2001 was $7.7 billion, compared with $8.1 billion in 2000. Earnings per share in 2001 were $4.45, nearly 3% less than the $4.58 earnings per share in 2000. Considering how many mutual funds and pension funds lost money year over year, heavy IBM investors certainly aren't going to cry foul.

John Joyce, IBM's senior VP and CFO, stood up for chairman and CEO Lou Gerstner to highlight the company's contributing segments and to point out the areas that are dragging profits down. Year over year, WebSphere software grew 46% to share market domination with BEA Systems Inc.; the mainframe (zSeries) business grew 15% while IBM sold twice as much capacity in the space; and the hosting segment of services grew 10%, Joyce says. On the down side, hard-disk drives, a broad part of the technology business, were down 35% year over year; systems integration services were down; and IBM lost $17 million in PC sales.

A.G. Edwards And Sons Inc. financial analyst Shebly Seyrafi says IBM did well last year in the enterprise-systems space but took a beating in PCs and services. While IBM blamed the services shortfall on late bookings in the fourth quarter with revenue coming this year, Seyrafi isn't about to upgrade his recommendation on IBM stock. "I was disappointed by the growth in services," he says. "We're coming out of a weak year and hopefully things will be better for IBM next year."