IBM Posts Sales Decline--But Increased Profits--In 2005

Overall, revenue in 2005 was off 5.4% at $91.1 billion, with sales of software up 4.4% and sales of services up just 2.5%.

January 18, 2006

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Forget, "Where's the beef?" For IBM, the question going forward is, "Where's the growth?" The tech bellwether on Tuesday said revenue declined in both the fourth quarter and in 2005 overall as the company's software and services businesses failed to make up for the controversial divesture of its PC business to a foreign company.

In the fourth quarter, IBM's revenue fell 11.7% to $24.4 billion. For the year, its sales were off 5.4% at $91.1 billion. In May, IBM wrapped up the sale of its PC business to Lenovo Group, a manufacturer partly owned by the Chinese government, with an eye to concentrating more heavily on its higher margin software and services business.

Those product lines, however, don't appear to be benefiting from the move. IBM's software sales in the fourth quarter totaled $4.6 billion--unchanged from a year earlier, though the business did manage a 4.4% sales gain on the year. Of more concern is the fact that IBM's supposed growth engine--Global Services--actually shrunk in the fourth quarter, declining 5% to $12 billion. The unit--which sells IT outsourcing and business consulting services--posted a sales increases of just 2.5% in 2005 overall, even as Indian competitors such as Tata Consultancy Services and Infosys post gains well into the double digits.

However, it's not all bad news for IBM and its investors--the company is becoming more profitable. Net income improved 12.7% in the fourth quarter and 6.1% on the year. Earnings per share jumped 19.2% in the quarter--to $1.99--and increased 11.2% on the year to $4.87. "IBM finished the year with another strong quarter," CEO Sam Palmisano said in a statement. At one point during after-hours trading on Instinet, IBM's shares were down 50 cents to $82.50.

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