IBM misses badly

[HenryTo]

Fits in with my scenario that earnings expectations are definitely too high here given that corporate profits as a percentage of GDP were at a historically high level of 9% during the first quarter. SUNW just reported and they missed as well (by 2 cents).
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TheStreet.com Staff Reporter
4/14/2005 4:59 PM EDT
URL: http://www.thestreet.com/tech/chriskraeuter/10217683.html

IBM (IBM:NYSE) missed its financial targets for its first quarter, due to a weak finish in its services group.

The technology giant unexpectedly reported financial results for its first quarter late Thursday, two business days ahead of schedule.

IBM reported net income of $1.4 billion, or 84 cents a share, on sales of $22.9 billion. During the same quarter last year, IBM earned $1.36 billion, or 81 cents a share, on sales of $22.2 billion.

Analysts had expected earnings of 90 cents a share on sales of $23.6 billion, on average, according to Thomson First Call.

After a brief halt, IBM fell $4.05, or 4.8%, to $79.59 in after-hours trading. The stock fell about 1% in the regular session. IBM's miss follows two days of heavy selling in technology shares and the broader market, and looked likely to exacerbate the situation heading into Friday.

Among shares moving lower in sympathy late Thursday were Intel (INTC:Nasdaq) , down about half a percent; Microsoft (MSFT:Nasdaq) , down about 1% after hours; Cisco (CSCO:Nasdaq) , down 1%; and Dell (DELL:Nasdaq) , down about 2%.

"We did not achieve all of our goals for the quarter," said CEO Sam Palmisano, according to a statement. "We are taking appropriate measures to sharpen our execution, as we continue to implement our global growth strategies."

The company will host a conference call starting at 6 p.m. EDT. IBM shares were halted on the unexpected release, down 95 cents at $83.62.

IBM has had a busy quarter, announcing a major storage partnership, a significant outsourcing deal, the inking of a couple of acquisitions and the debut of a new semiconductor architecture, but its stock has done nothing but slide this year.

IBM shares are currently at their lowest level since late September. Shares are down 14% this year and 7% this month.

Investors have grown increasingly concerned about where IBM's future growth is going to come from. The company is aiming at double-digit earnings growth and mid- to high-single digit sales growth as long-term targets.

[HenryTo]

Some bright news for IBM, finally - although the number of rumored layoffs in the company has increased from a range of 5,000 - 10,000 to 10,000 - 20,000.

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IBM looks to health care industry for growth

NEW YORK (AP) - As it moves aggressively into the health care business, International Business Machines Corp. announced an 8-year, $402 million partnership with the University of Pittsburgh Medical Center that the company said will be a model for how the health care industry can use new technology.

Earlier this week, the company announced a test system for sharing medical data across hospitals, agencies and patients, which will connect IBM sites in San Jose, Calif., Rochester, Minn., and Haifa, Israel. The company also said earlier this week that it plans to buy Healthlink, a Houston-based consulting firm that helps hospitals convert to electronic medical records. It did not disclose a price.

IBM's first-quarter earnings, announced earlier this month, disappointed investors and sent stocks down the following day. Jim Gorman, an analyst at Prudential Equity Group, said he expects the company to announce 10,000 to 20,000 job cuts within the next week or so.

One bright spot was revenue from the company's health sector, which was up 15 percent for the quarter. IBM hopes an industrywide move to electronic records and a coming mountain of genetic data will boost its sales further.

``We really believe the time has come where we're going to see a transformation in health care,'' said Neil de Crescenzo, IBM's Business Consulting Services health care industry leader.

As part of the Pittsburgh partnership, the hospital will introduce RFID (radio frequency identification) devices that could be used in infant's ID bracelets. They may also be used to scan a patient and scan their medication to make sure the right medicine is given to a patient in the correct dose and at the right time. Using wireless technology, that information could be immediately filed in the patient's records.

The partnership will simplify the hospitals' IT systems, said Dan Drawbaugh, the hospital system's chief information officer. One goal of the partnership is to reduce the number of servers it uses from 786 to 305 and reduce its operating systems from nine to four.

Deals between hospitals and big businesses outside health care take time. IBM talked to the Mayo Clinic for about two years before the clinic agreed to a partnership with IBM, announced last August, in which it will use the company's Blue Gene supercomputer for research such as mathematical modeling to better understand gene and protein structures.

A nonprofit like the clinic works differently than a for-profit like IBM, Dr. Nina Schwenk, chair of the Mayo Foundation's IT committee, said in an interview earlier this year. ``They need to be responsible to their stakeholders,'' she said. ``It wasn't immediately evident whether we'd be able to work with a common purpose.''

One of the selling points was the supercomputer's ability to process genetic data, which could be used in the future to calibrate an individual's dose and type of medication according to their genetic profile.

``That's going to be very information-intensive complex data that I don't believe is humanly possible to interpret without assistance,'' Schwenk said.

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More technology news and opinion at www.siliconvalley.com

[HenryTo]

Stock price now trending down during the day after the initial pop this morning:
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IBM CEO Says Co. 'Taking Aggressive Action'
Tuesday April 26, 2:06 pm ET
IBM CEO Says Company Is 'Taking Aggressive Action' to Fix Problems That Led to Earnings Shortfall


NORTH CHARLESTON, S.C. (AP) -- IBM Chief Executive Samuel J. Palmisano told shareholders gathered at the annual meeting here that the company was "taking aggressive action" to remedy problems that led to a first-quarter earnings shortfall.

The Armonk, N.Y., technology company had trouble closing deals at the end of the quarter, and "we attribute most of that to our own execution," Palmisano said.

He didn't specify what actions might be taken, but said the company was "restructuring parts of our operations to reduce bureaucracy and move more of our people and resources out to the field, closer to clients."

Analysts expect International Business Machines Corp. to cut jobs, particularly in lagging regions of Western Europe. Palmisano did say that he and about 50 other top executives had agreed to defer their own compensation increases "until we get our business back on track."

He added that other employees would get raises as planned. IBM's earnings shortfall, announced earlier this month, sent the company's stock price reeling and led to broader concerns that corporate demand for information technology was sagging.

Also Tuesday, IBM said it would allocate an additional $5 billion toward share repurchases and had increased its dividend to 20 cents per common share, from 18 cents. The company gave no timetable for the buybacks.

Shareholders presented six proposals on issues ranging from executive compensation to off-shoring of jobs. All failed, though a proposal that executive bonuses be calculated without regard for the impact of pension income on bottom-line results garnered 38.1 percent of votes cast.

One proposal, to account for the expense the company incurs when it issues stock options to employees, was rendered moot by IBM's decision to do so in the first quarter and withdrawn.

IBM's 12 director nominees were also elected at the annual meeting.

IBM also said Tuesday it had acquired Healthlink Inc., a closely held Houston-based health-care consultancy. The companies didn't disclose the purchase price.

IBM shares rose $1.36, or 1.8 percent, to $75.98 in afternoon trading on the New York Stock Exchange.

[HenryTo]

This is the first time I’ve heard of specific numbers being thrown around.
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IBM may fix slump by firing 10,000 - analyst

By Ashlee Vance in Chicago
Published Friday 15th April 2005 16:57 GMT

IBM could cull up to 10,000 workers to make up for a disconcerting first quarter revenue shortfall, according to a top financial analyst. The question is whether these cuts will tidy the bottom line enough to offset what appear to be broad problems plaguing the company.

During a conference call yesterday to explain a 9 cent per share earnings miss, IBM confessed it would consider a "sizable restructuring" but declined to detail what form this reorganization would take. Sanford Bernstein's meticulous analyst Toni Sacconaghi has predicted the restructuring will likely result in between 5,000 and 10,000 staffers losing their jobs. If there are job cuts, they will probably be tied to IBM's mainframe business and particularly mainframe workers in Europe, according to pundits. IBM's mainframe business suffered a double-digit drop in sales during the first quarter, and weak economies in Europe and Japan were blamed for the overall revenue miss.

Sacconaghi delivered worse news to IBM's shareholders, saying the first quarter slip up looks even darker upon close inspection.

IBM surprised Wall Street by releasing the first quarter results yesterday - days ahead of an initial April 18 report date. IBM pushed up the release because of the materially weaker than expected results.
With analysts already on edge from this move, IBM reported first quarter revenue of $22.9bn, which missed the consensus estimate of $23.7bn. This revenue total marked a 3 per cent decline year-over-year in constant currency. Not the kind of performance the market wants to see from the IT world's biggest player.

But it was the earnings per share (EPS) miss that really spooked the analysts. IBM handed out two EPS figures - one standard number and one accounting for a new policy of expensing stock options. Sacconaghi was not moved by either number.

"EPS including options expense was $0.85; ex-options, EPS was $0.95, a nine cent miss vs. consensus estimates ($1.04) prior to last week, when IBM told analysts to lower estimates $0.14 due to options expense," the analyst wrote today in a research note. "We note that IBM’s guide-down of earnings by $0.14 last week did not reflect the true expected cost of options in the quarter of $0.10."

In addition, IBM's results seem detached from the economic issues affecting rivals.

IBM complained about Germany, France and Italy dragging down sales. It also flagged a precipitous drop off in sales during March as the main reason Q1 turned out so bad.

"The earnings miss feels to be in good part (perhaps 50% or more) due to IBM specific reasons rather than market reasons," Sacconaghi wrote. "(We) note that: (1) Sun noted that its quarter exhibited fairly normal linearity; (2) the consulting market appears to be stronger in Europe than other regions and Accenture had strong consulting book-to-bill; and (3) Dell and Sun both commented that the US (not Europe) was their weakest region."

Investors and industry watchers will need to decide whether this really is an IBM-only syndrome or if technology spending is pulling back in a big way. Such a crucial question couldn't arrive at a worse time for IBM's stock. The blemished Q1 popped up during a painful week-long slide on the US markets, leaving IBM way down from its Monday high of $87.56. Shares of IBM are trading at $77.14 - down more than 7 per cent on the day.