Business looking up at IBM despite profit dip

Published on Tuesday 18 October 2005 12:08

COMPUTER giant IBM has topped Wall Street expectations with its latest figures, on the back of a recovery in its consulting and services business, despite overall profits cooling.

Earlier this year, the firm, dubbed Big Blue, suffered a slowdown in services, which accounts for about 50 per cent of its revenues. But business has picked up after landing a series of lucrative deals.

In May, IBM said it was to cut 13,000 jobs, or about four per cent of its workforce, with lay-offs hitting hardest in Europe, and taking its global workforce down to around 310,000.

Third-quarter net profits at the world's largest computer company dipped to 866 million from some 887m a year earlier.

Sales fell 7.8 per cent to 12.3 billion, reflecting the disposal of IBM's personal-computer division which was sold to China's Lenovo Group.

Lenovo, now the third-biggest PC maker in the world, bought Big Blue's loss-making unit in May in a deal worth around 700m.

Chief executive Sam Palmisano said: "IBM had a good quarter. It showed the strength of our business model across hardware, software and services, and we continued to see the benefit of the strategic transitions that we've implemented in past quarters."

Mr Palmisano added that restructuring actions and streamlined management in Europe were starting to yield results.

"Many of the businesses that are central to our strategy - including middleware, midrange servers, and business performance transformation services, especially in our engineering and technology services - performed well, especially in emerging markets."

And he pointed out that IBM was well positioned in its microelectronics business as the game console industry moves to its next generation of products. "Our clients are leveraging IBM's unique ability to apply innovative, high-value skills and solutions to transform their businesses and industries," he explained.

Analsyst Ed Crotty said: "Overall I think it was a solid quarter. The bookings came through as we expected."

The fall in net profits can be partially blamed on a 300m tax charge that the computer firm had to make as it repatriated 5.14bn in profits earned overseas.

Meanwhile, IBM warned currency translation effects from its global business were likely to cut fourth-quarter revenue by around three per cent at current rates.

Earlier this year, IBM leapt ahead in the market for supercomputers used to solve the world's toughest research problems, according to a survey.

The firm now claims to have just over half of the world's top 500 supercomputers - 259 machines - up 8.8 per cent on November 2004, giving it a 51.8 per cent share of the global market.

IBM shares have slumped 16 per cent this year compared with the 2.5 per cent gain of the American Stock Exchange Computer Hardware Index.