ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, January 19, 1996 TAG: 9601190052
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
DATELINE: NEW YORK
SOURCE: Associated Press
IBM, finishing its best year since 1990, reported a 42 percent jump in fourth-quarter profit Thursday and gave a more upbeat near-term outlook than other technology firms.
While International Business Machines Corp. said it will be hard to duplicate its 1995 growth this year, most of its operations are performing well. IBM executives said laptop personal computers, minicomputers and data storage systems are targets for improvement.
Its services business, which includes consulting and running complex data centers for companies, continued to be its fastest-growing and passed software to become IBM's second-largest operation after hardware.
Analysts praised the performance and IBM's stock rose $8.621/2 to $96.25, a 9.8 percent surge, on the New York Stock Exchange.
The company earned $1.7 billion, or $3.09 per share, in the quarter that ended Dec. 31. It earned $1.2 billion, or $2.06 per share, in the same three-month period in 1994.
Revenue rose 10 percent to $21.9 billion from $19.9 billion.
IBM took a $663 million pre-tax charge in the quarter, which included the expense of about 1,200 job cuts, and a $37 million charge to reflect the reduced value of some software. The charges were offset somewhat by a pre-tax gain of $175 million related to a 1994 subsidiary sale.
Without the charges, IBM would have earned $2 billion, or $3.66 per share. Wall Street analysts had forecast a profit of $3.63 per share, excluding the charges.
``Our fundamental strategies are working,'' IBM chief executive Louis V. Gerstner Jr. said in a statement.
IBM results also yielded some surprises in software. For instance, the company sold 5 million copies of its OS-2 operating system last year. And Lotus Development Corp., which IBM acquired last summer in the software industry's biggest takeover, sold 1.5 million copies of its Notes communication and database program during the quarter.
Questions have been raised about Notes' viability because programs that use World Wide Web-related technical standards have recently emerged to perform some of the same functions.
Chief financial officer Rick Thoman's first-quarter outlook was more optimistic than some technology executives have been this week. But he cautioned that pricing pressures already are appearing in computer hardware.
``I don't know enough to be negative but I'm not euphoric either,'' Thoman said.
The biggest worry is a slowdown in PC sales growth, which chipmaker Intel Corp. and others have forecast. That could lead to overcapacity in both PC and chip manufacturing for IBM, Thoman said.
IBM experienced trouble in the third quarter when component delays slowed sales of some large computers and data storage systems. The company recovered from that difficulty in the final three months of 1995, but revenue for AS-400 minicomputers fell because of a transition to new products.
Both the minicomputers and data storage systems should pick up in the first quarter. Thoman said he also expected improvement in IBM's ThinkPad business, which carried its PC operation through lean times a year ago but has fallen behind competitors with new models.
IBM's service operation may have passed market leader Electronic Data Systems Corp. in the quarter but that won't be known until EDS reports its performance later this month.
But keeping that up this year may be hard because of a shortage of qualified people, Thoman said.
Analyst Bob Djurdjevic, president of Annex Research in Phoenix, said services growth may also be moderated by the need for better communication systems, particularly overseas.
``It is one thing to have bodies and another thing to have them communicate and work with each other,'' he said.
IBM set aside $1.8 billion in the third quarter to help pay for the Lotus takeover. Without that and the fourth quarter charges, IBM would have earned $6.3 billion, or $11.02 per share, in 1995.
The company finished the year earning $4.1 billion, or $7.23 per share. That compares with $2.9 billion, or $5.02 per share, in 1994.
Annual revenue rose 12 percent to $71.9 billion from $64.1 billion in 1994.
In another report, Seattle-based Microsoft Corp. said its second fiscal quarter profit shot up 54 percent to a record $575 million.
Microsoft said Thursday its profits were lifted by strong sales of Windows 95, the new version of its program for operating the basic functions of a personal computer.
A shift occurred during the quarter in the predominant way that Windows 95 was sold. More versions were sold pre-installed on new PCs by manufacturers in the period.
In the previous quarter, the first for the product, sales of Windows 95 were led by versions in stores, bought chiefly by people who already owned PCs.
Microsoft's profit was 90 cents a share in the quarter that ended Dec. 31. It earned $374 million, or 60 cents a share, a year earlier.
Revenue was $2.2 billion, up 48 percent from $1.5 billion the previous year.
The company's profit was boosted by a one-time net gain of 3 cents per share from the sale of long-term assets. Wall Street analysts had forecast a profit of about 84 cents for Microsoft.
Its stock rose $2.75 to $87.621/2 on the Nasdaq Thursday. The company didn't announce results until after the market closed.
``This has been another strong quarter for our company,'' said Bob Herbold, chief operating officer. ``These record results reflect the continuing adoption of the full range of our products by customers worldwide.''
The company did not say how many copies of Windows 95 it has shipped. But it said revenue from PC makers, who pre-load Windows 95 and other products on new computers, amounted to $672 million in the quarter, up from $548 million in the first fiscal quarter.
Windows 95 retail upgrade revenues were $180 million in the second quarter, down from $260 million in the previous three months, a drop-off expected after the initial sales rush.
Some analysts late in the quarter lowered their estimates of 1995 sales of Windows 95, citing the slowing retail sales of the product. Consumers appeared reluctant to buy memory chips or make other improvements for their computers to handle Windows 95.
For the first six months of the fiscal year, the company earned $1.1 billion or $1.68 a share, compared with $689 million or $1.10 a share a year earlier.
Revenue was $4.2 billion, up from $2.7 billion a year ago.
LENGTH: Long : 119 linesby CNB