International Business Machines Corp. yesterday posted its first profit increase since early 1986, notching a 12.2 percent gain in the third quarter, but unimpressed investors pushed the stock slightly lower.
Bears on IBM noted that the profit was helped by a lower tax rate and that operating income was virtually unchanged from a year earlier.
The stock of the world's largest computer company closed down 75 cents at $148.75 a share on the New York Stock Exchange in spite of a market rally.
Since a peak of $175.87 1/2 in August, IBM's stock has lost nearly 17 percent of its value as optimism over its growth prospects has receded.
IBM said it earned $1.21 billion ($2 a share) in the third quarter, compared to $1.08 billion ($1.76) a year earlier. The increase broke a string of five straight quarterly profit declines.
Its revenue rose 6.9 percent to $12.7 billion from $11.9 billion a year earlier.
For the nine-month period, IBM's earnings fell 6.7 percent to $3.17 billion ($5.25) from $3.40 billion ($5.53) a year earlier.
IBM's nine-month revenue rose 5.5 percent to $36.2 billion from $34.3 billion a year earlier.
The $2 a share for the third quarter was slightly less than the $2.07 a share that was the median estimate of analysts surveyed by Zacks Investment Research Inc. of Chicago.
Estimates had ranged from about $1.80 to $2.20 a share.
"IBM's efforts to become more competitive are taking hold," John Akers, the chairman and chief executive, said in a prepared statement. "We continue to make steady progress in achieving the objectives we have set for ourselves."
IBM's stock has been oversold, said George Elling of Oppenheimer & Co. Inc., who noted that its price, compared to its likely profits next year, is well below that of other blue-chip companies, such as General Electric Co. and Ford Motor Co.
"People are focusing on the negatives of IBM and have lost sight of the many positives," such as its position as the dominant company of the computer industry, he said.
But skeptics found fault with the results. IBM's third-quarter operating earnings were flat at $1.562 billion, compared to $1.561 billion a year earlier. The provision for income taxes was 38 percent, down from 41.2 percent a year earlier.
"The investor at this point has started wondering why IBM's profitability has not improved, given that 14,000 employes had taken early retirement before the end of the second quarter," said Aharon Orlansky, an analyst for Morgan, Olmstead, Kennedy & Gardner.
The cheaper dollar helped IBM's results by increasing the dollar value of profits and revenue earned in foreign currencies. IBM estimated that the dollar's fall added $295 million to profits and $2.02 billion to revenue in the first nine months, compared to a year earlier.