International Business Machines Corp. Tuesday announced lower earnings and slightly higher revenues for the second quarter ended June 30,
disappointing Wall Street optimists.
A number of analysts increased their earnings expectations sharply Monday in the wake of higher than anticipated results by several other computer makers, specifically NCR Corp., which showed a 25 percent earnings jump for the quarter.
Many had hoped that the nation`s largest computer maker would exceed earlier ”low-ball” earnings forecasts and show net income in the same range as last year`s second-quarter figures. As a result, IBM`s stock jumped $2.87, to $169.87 a share, Monday.
”You always hope for the best, but this time we didn`t get it,” said one analyst, who called IBM`s overall second-quarter showing ”kind of neutral.”
IBM reported net income of $1.18 billion, or $1.95 a share, down 9.8 percent from $1.31 billion, or $2.12 a share, in the year-earlier period. Revenues were up 4.3 percent, to $12.80 billion from $12.27 billion a year earlier.
On Tuesday, IBM stock gave back most of Monday`s gains, falling $2.37, to $167.50. Many of the analysts who had predicted earnings in the $1.85 to $1.95 range blamed their colleagues for creating unrealistic expectations by raising their estimates to $2 to $2.15 the day before earnings came out.
”IBM`s business isn`t getting worse, but it isn`t getting better to the extent that some analysts were portraying it yesterday,” said Thomas Rooney, an analyst with Donaldson Lufkin & Jenrette Inc.
”What IBM`s earnings really show is that the turnaround is underway, but it is going to be very slow,” said E.F. Hutton & Co. Inc.`s Michael Geran.
”IBM has its costs under control, but the revenue growth was less than we had hoped. The company is in a period of product transition. I think it will be the fourth quarter before we see IBM humming again.”
IBM Chairman John Akers said that the response to the company`s new personal computer models has been positive. He added that IBM has begun shipping some models of its midrange 9370 system and 3090 E series large processors earlier than originally planned. The full line of new personal computer models will not be available until the end of the year.
”We look at it as a reasonable performance, considering that IBM essentially had no new products to sell,” said Drexel Burnham Lambert Inc.`s Peter Labe. ”We`re looking for a big second half.”
Rooney was less satisfied with the re-sults.
”When you actually look at the earnings, and see that some came from the sale of Intel stock, and some from currency gains, plus the fact that at least a couple of their new computer models were available, you have to conclude that it wasn`t a very impressive quarter,” he said.
Akers said almost 13,000 U.S. employees took advantage of IBM`s early retirement program.
”Our resource balancing measures, together with the cost and expense actions we have implemented, will provide increasing benefits later this year and beyond,” he said.
IBM`s earnings for the first six months were $1.96 billion, or $3.25 a share, down 15.5 percent from $2.32 billion, or $3.77 a share, in the first half of 1986. Revenues were up 4.8 percent, to $23.48 billion from $22.40 billion.
”We will have to see substantial improvements in the economy for IBM to earn more than $9 a share for the full year,” Rooney said.
Honeywell Inc. also reported second-quarter earnings Tuesday.
The Minneapolis-based electronics company reported income from continuing operations of $54.3 million, or $1.21 a share, up 24 percent from $43.8 million, or 97 cents a share, in the year-earlier period.
Total net income was $36.1 million, or 80 cents a share, which included a loss on discontinued operations. Revenues climbed to $1.58 billion from $1.32 billion, an increase of 18.7 percent.
