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IInternational Business Machines, the world’s biggest computer company, on Tuesday reported a jump in net income in the fourth quarter, driven by margin improvements.
Samuel Palmisano, IBM’s chairman and chief executive, said the company was reaping the benefits of a renewed focus on more profitable business segments - part of a restructuring programme launched last year.
“Our cash position remains strong, and we saw impressive groth in important parts of our business,” he said. “IBM’s business model is much more balanced and profitable than it was just a few years ago.”
In May, IBM sold its lossmaking personal computer division to Lenovo, the Chinese computer maker. It also announced plans to trim up to 13,000 jobs. Earlier this month, it moved to save an additional $3bn by 2010 by freezing its employees’ defined benefit pension schemes.
Tuesday’s results came just hours after the company revealed that it had won a 10-year contract worth $1.1bn to provide IT services to Gap, the fashion retailer.
IBM made a net profit of $3.2bn in the fiscal fourth quarter, or $1.99 a share, up from a restated $2.8bn, or $1.67 a share, a year earlier. The year-ago figures were restated to account for the cost of stock options expensing.
Excluding special charges, IBM earned $2.11 per share, ahead of most analysts’ expectations of $1.94 per share. Special charges included a $267m pensions charge and a $36m charge related to the expensing of stock options.
Fourth quarter revenues fell to $24.4bn from $27.7bn, following the sale of the group’s PC division. Stripping out lost PC sales and currency effects, revenues rose just 3 per cent, IBM said.
IBM’s gross profit margin improved to 44.1 per cent, from 38.8 per cent a year earlier.
The company’s services business had revenues of $12bn in the quarter. That was down 5 per cent from $12.7bn one year ago . Bookings were $11.5bn, slightly ahead of the $11bn expected by some analysts. Brisk sales of mainframe computers also helped boost profits.
For the full year, IBM notched a profit of $7.9bn, or $4.87 a share, up from $7.5bn and $4.38 a share last year. Revenues slipped 5.4 per cent to $91.1bn. The company ended 2005 with $13.6bn in cash.
IBM shares closed down 0.2 per cent at $83 ahead of yesterday’s announcement, which came after the closing bell. They slipped 1 per cent in after hours trading to $82.15 - down 10 per cent from a high of more than $95 in January last year.