IBM is in its happy place for Q4
The once oft-heard phrase, "No one ever got fired for buying IBM," certainly extends to IBM's stocks today, as the company released a sunny fourth-quarter earnings report.
Late this afternoon, IBM reported a gain in net income to $4.43 billion, up from $3.95 billion in Q4 2007. That works out to Q4 2008 earnings of $3.28/share, much better than the predicted $3.03/share, with returns of $8.93/share for the full year. Revenues were slightly squishy at $27.1 billion, off from the $28.1 billion predicted by analysts.
For the quarter, the $3.28/share return represents an increase of 17%, and the $4.43 billion net income represents an increase of 12%.
For the full 2008 year, IBM reported revenue of $103.6 billion, a record; pre-tax profit of $16.7 billion, a record; and free-cash flow of $14.3 billion, a record, in addition to that record $8.93/share return.
Of course, as senior VP and CFO Mark Loughridge pointed out on the call, this isn't IBM's first time at the recession rodeo. Comparing the company's actions during the downturn at the beginning of the decade with its performance now, Loughridge noted that the company's taken a number of actions since then to keep itself steady.
"IBM's a much different company since the last recession; we're much stronger than we were in 2002," he noted. He cited the switch to high-value market segments -- and away from commodity product lines such as laptops -- as a major part of that long-term effort.
Adjusted for currency fluctuations, four of the five segments that currently compose IBM -- Global Technology Services, Global Business Services, Software, and Global Financing -- reported revenue growth for 2008, with Software reporting the lion's share of profits. (The fifth segment is Systems and Technology, which includes the System z mainframe server line as well as various older and legacy systems and the System Storage, Retail Store Solutions, and Microelectronics OEM divisions.)
Fresh from reporting its sixteenth consecutive year of filing for more US patents than any other entity -- more than Microsoft, HP, and Cisco combined, says Loughridge -- IBM noted that changes in the tax code providing credits for research delivered a year-over-year Q4 tax-rate change of 4.2%, from 28% in 2007 down to 23.8%. The rate for 2009 should be around 26.5%.
And though the recession's real for both IBM and its customers (the public-services sector is strong, the company says, but it has taken judicious cost-cutting to balance the softness in the financial and industrial sectors of their marketplace), the company expects good things in 2009. IBM's on track, according to officials on the call, to see returns of at least $9.20/share for 2009. That's a continued reflection of the long-term strategy, says Loughridge, and they'll keep plugging away at it: "I really like our hand [for 2009], but as always, it's back to work."
The market likes what it heard. IBM was up 4.01% in after-hours trading, to 85.25; it had closed the day 30 minutes before the earnings call, at 81.98. The high during trading hours was 84.92.