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.
In early trading Tuesday, IBM`s stock gave back Monday`s gains, falling $2.87, to $167 a share. Many of the analysts who had predicted earnings inthe $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 results.
”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.
