IBM Gives Wall Street a Present: More Profits Than Expected

Published: January 15, 2008

by Timothy Prickett Morgan

The rivalry between IBM and Hewlett-Packard in the information technology sector continues apace this week, and now it is Big Blue's turn to say that it is doing better than expected financially. Before the stock markets in the United States opened on Monday morning, IBM announced preliminary financial results for the fourth quarter of 2007 and the full year, ahead of Thursday afternoon's scheduled chat with Wall Street to go over the figures.

All public companies are supposed to keep investors in the loop on big changes in their business, but IBM's pre-announcement seems to be deliberately staged to not only give IBM a bounce in its stock price, but to also help stabilize Wall Street after a particularly dismal showing last week. The Dow Jones Industrial Average closed at 12,606 and the Nasdaq Composite Index closed at 2,440; tech stocks have been sliding since the new year, and it wasn't too long ago (early October 2007) that the Dow was above 14,000 and IBM's stock price hit a peak kissing $121.46 a share. On Friday, IBM's shares were at $97.67 a pop. So you can bet IBM was strongly motivated to push that price up.

But there is more at stake here than a share price for a blue chip stock. IBM gets a lot of its money from the largest enterprises in the world, and if they get jumpy because their own businesses are sputtering a little, it has a direct effect on IBM's sales. So you can imagine that if IBM had some good news to share about the fourth quarter, boy was it ever eager to benefit directly by pushing up its share price ahead of the actual earnings announcement on Thursday and indirectly by giving large enterprise customers another data point that suggests the economy is not necessarily skidding toward a recession.

In the statement IBM released on Monday morning, the company said that it would book $28.9 billion in sales in the fourth quarter of 2007, up 10 percent with 6 percent of that coming home to Armonk, New York, thanks mainly to the slide of the U.S. dollar. IBM said that it would bring $2.80 a share to the bottom line, a 24 percent increase over the year-ago quarter. The company also said that it would have $98.8 billion in sales for all of 2007 (up 8 percent, with 4 percent coming from currency), and would bring $7.18 per share to the bottom line for the year (up 18 percent compared to 2006). The company rubbed it in a little on HP, saying it had $16 billion in cash as the year closed--a hint that IBM will be making more acquisitions.

"The broad scope of IBM’s global business--led by strong operational performance in Asia, Europe, and emerging countries--drove these outstanding results," said Samuel Palmisano, IBM's chairman, chief executive officer, and president in the statement. "IBM is well-positioned as we begin 2008 as a result of our global business reach, solid recurring revenue stream and strong financial position. We are on track to achieve our long-term earnings-per-share roadmap objective in 2010."

Thomson Financial has the official job of talking to brokerage house analysts and figuring out what the consensus for earnings and sales are for public companies, and as of last week, those analysts polled by Thomson Financial were, on average, pegging IBM's sales for Q4 at $27.82 billion and for the company to bring $2.60 per share to the bottom line.