IBM services earnings fail to impress

The numbers weren't all that bad, but some industry observers expected to see a larger increase in new business.

Maybe their expectations were too high, but when IBM reported its earnings Friday, the services division disappointed

many on Wall Street.

IBM reported on Thursday that profit had risen 16% and revenue was up 11%, helped by the weak dollar.

Sales of Global Services, increased by 9%. But new services business amounted to $10.5 billion, which some analysts said was not enough.

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During a conference call on Friday, IBM Chief Financial Officer John Joyce said more businesses reduced the scope or length of their contracts, but the pace of that reduction has begun to slow down. As a result, Joyce said he expects profitability in services to improve in the second half of this year.

IBM's business consulting division is one of the company's fastest growing units. IBM has been investing heavily in its consulting group during the past 10 years, but made its biggest gains in July of 2002, when it purchased PricewaterhouseCoopers Consulting for $3.5 billion.

IBM's services division now employs about 180,000 people, more than half the company's workforce and accounts for about 50% of IBM's total revenues.

IBM added to its consulting group last week with the purchase of the business continuity services unit of London-based Schlumberger, a project management firm specializing in the oil and gas industry.

Samuel Palmisano, IBM chairman and chief executive officer, put a more positive spin on the numbers, stating IBM continued to out-perform the industry.

"We continued our industry-leading work in services with more than $10 billion in signings after a very strong fourth quarter of signings," Palmisano said in a statement.

He said the company made significant investments and repositioned itself during the downturn, and those strategic moves would begin to pay off for its clients and shareholders. "We remain enthusiastic about our prospects for 2004," he said.

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