IBM Tries to Reassure Wall Street It Is Still Making Money

Published: October 13, 2008

by Timothy Prickett Morgan

In case you been visiting relatives on Mars and haven't been able to catch up on your reading, the global economy and its (formerly and possibly never) related financial markets have been swooning. And last week, as a number of brokerage houses started putting out reports suggesting that some tech players might have taken it on the chin, IBM did something it rarely does: Last Wednesday, it preannounced its financial results for the third quarter.

Not that IBM's preannouncement did all that much to quell Wall Street's fears. While there was something of a bounce on Thursday morning attributed to IBM's affirmation that it was going to make money and see sales growth in the third quarter, the Dow Jones Industrial Average bled off nearly another 679 points that day, closing at 8,579--the lowest point since 2003, and down over 20 percent in the past week. It is hard to remember that the Dow Jones was above 14,000 a year ago; it just doesn't seem possible.

For its part, IBM is remaining optimistic about its prospects. The company said that sales would rise by 5 percent in the third quarter, to $25.3 billion, but added that 3 percent of that was due to currency effects. Earnings per share rose by 22 percent to $2.05 a pop in the quarter, a testament to IBM's share buybacks, while net earnings proper rose by 20 percent to $2.8 billion. IBM's bottom line was boosted by better margins in the quarter, and IBM said that it generated $6.4 billion in cash and had $9.8 billion in cash sitting in the bank. IBM said it still continued to expect per share earnings of $8.75 per share for all of 2008, and given the credit crunch and nervousness of companies of all shapes and sizes, it is a wonder to behold a company being so calm. (Perhaps if your left hand is going to buy a whole lotta wares from your right hand, you can be calm. I dunno.)

There was some concern that IBM's Global Financing unit, which finances equipment for resellers and end users, would come to the attention of banking-adverse investors and then compel people to dump IBM stock as they have for other banks. As I previously reported, IBM was put on a list enforced by the Securities and Exchange Commission that prohibited the short selling of stocks on the list, and it is not a coincidence that IBM was expected to be removed from the list on Thursday. Hence the announcement on Wednesday night last week after the market closed that the numbers were OK in the third quarter.

IBM's president, chief executive officer, and chairman used his normal boilerplate to convey Big Blue's calm in the storm in his traditional statement. (Palmisano rarely actually speaks in public.) "Our results demonstrate that the combination of a steady base of recurring revenue and profits, investments for growth in emerging markets, a range of products and services that deliver value to clients, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times," Palmisano said. "We remain confident in our full-year outlook."

Well, that makes one of us.

IBM reports its financial results this Thursday afternoon, and I will post the story on our Breaking News section if you can't wait until the following Monday to get the details.

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