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Tech Check
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IBM's first quarter earnings might be a disappointment to some, as reflected in the company's after-market stock trading, but dig a little deeper, and it isn't too hard to find some good, maybe very good, news indeed.
IBM reports $1.70 a share in earnings on $21.70 billion in revenue. The bottomline beat estimates by 4 cents, but that top line is a little lighter than expected. Looking across the company's major business units, just about every sector missed Wall Street expectations, including Global Tech Services and Technology Services (about $12 billion against the $13.49 billion expected), Business Services ($4.397 billion versus the $4.51 billion expected), Systems/Technology ($3.22 billion versus the $3.25 billion anticipated), Software ($4.5 billion versus $4.64 expected), and Financing ($578 million versus $608 million in expectations).
That's the bad news: The good news is that gross margin exceeded expectations, coming in at 43.4 percent versus the 42.4 percent expected, and the key reason why IBM was able to beat on the bottom line despite the topline miss. That bodes well for IBM's operational and structural excellence as the company continues to cut costs and streamline operations. IBM cut 9,000 jobs last month, including 5,000 in the United States last month alone.
IBM [IBM
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] also took the unusual step of sticking its financial neck out into 2010, now projecting between $10 and $11 a share in earnings. In fact, the company said "We remain ahead of pace for our 2010 roadmap of $10 - $11 a share," indicating the possibility that it would exceed those expectations.
The company also reiterated that $9.20 EPS expectation for full-year 2009, something analysts were hoping for, with some anticipating the company dipping to $9.03 instead. Both figures can be taken as signs of recovery not just for IBM, but indeed broader technology. IBM's lower-than-expected revenue did not come as a surprise. How little the drop-off in revenue actually was might be taken as an incremental positive.
Still, the report goes to show that companies focused on margin improvements as a way to squeeze more profits even during declining sales speaks to analysts and their advice to investors to seek star performers and leaders in their respective markets over smaller companies having difficulty competing. Hewlett-Packard is another example of this kind of trend where operational changes try to make up for macro-economic weakness.
IBM is trading lower on the news because of what one analyst told me was a classic case of profit-taking after the company's 20 percent run since March 9.
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes