Here we go again, I suppose corporate giants just can seem to surprise anyone anymore. Their share prices have been barely able to break through the $100 mark. Their quarterly results fell right into its expected pattern, profitability increased to what was expected. But still, their share prices are in the blues.
First-quarter earnings rose 8% and investors kicked their stocks down after hours, because of worries about IBM's poor home market and business and its decline in services contract signings. Perhaps if their services arm showed some strength, services being IBM's leveraging business arm, their shares would have gone up two bucks instead of down. Only $11.1 billion in contracts were signed this quarter, compared with $11.4 billion a year ago. Histortically, the first three months for IBM were the weakest, and they managed to pull in $1.84 billion, $1.21 per share - exactly on the dot according to markets EPS expectations. Comparably, last year, profits was $1.71 billion, or $1.08 per share.
IBM's revenue also rose 7% to $22 billion, slightly ahead of forecasts of $21.9 billion.
The other problem contributing to the drop in share prices is that revenues would have only grown 4% is it wasn't for the weakness in the US dollar. Which is precisely the worry! Domestic business isn't at par, and if the US dollar showed some strength (with declining expected rates), the 3% extra in revenues from favorable FX, will be no more. IBM's weakest geographic segment was its largest: the Americas, where revenue rose only 1% - US was the worse, followed by Canada.
IBM's next-biggest profit driver comes from its hardware division - at least this one grew. It saw revenue rise 2% to $4.5 billion. Again it sucks to admit that if it wasn't for the currency issue, there wouldn't have been any growth.
For 2007, earnings are still expected at $6.72 per share and sales of $95.6 billion. I'd get in if prices surpassed the $100 mark. In the meantime, I'd rather put my money elsewhere to make a quick buck. Much like Dendreon Corp."DNDN" a couple of weeks ago, and TravelZoo Inc. "TZOO" for this coming week.
- Ishmiel Apr. 18, 2007.