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IBM Profits Disappoint

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Earlier this month, IBM announced its intention to expense equity compensation in the first quarter.

The adoption is based on the implementation guidance provided in the SEC’s release of Staff Accounting Bulletin No. 107, and in accordance with the FASB’s revised Statement of Financial Accounting Standards (SFAS) No. 123, “Share- based Payments.”

IBM announced first- quarter 2005 diluted earnings per common share of $.85 from continuing operations as reported including the effect of expensing share-based compensation, compared with diluted earnings on a similar basis of $.79 per share in the first quarter of 2004, an increase of 8 percent. First- quarter income from continuing operations was $1.41 billion, including the adoption of expensing equity compensation, compared with $1.36 billion a year ago, an increase of 3 percent. Revenues from continuing operations for the first quarter were $22.9 billion, up 3 percent, compared with revenues of $22.2 billion for the first quarter of 2004.

Samuel J. Palmisano, IBM chairman and chief executive officer, said: “After a strong start, we had difficulty closing transactions in the final weeks of the quarter, especially in countries with soft economic conditions, as well as with short-term Global Services signings. As a result, we did not achieve all of our goals for the quarter. Middleware software and midrange systems results were solid, and we grew significantly in Business Performance Transformation Services and in the emerging markets of China, Brazil, India and Eastern Europe. We returned nearly $4 billion to investors in the quarter through share repurchases and dividends. We are taking appropriate measures to sharpen our execution, as we continue to implement our global growth strategies.”

First-quarter revenue growth of 3 percent (1 percent, adjusting for currency) was driven by growth in the Americas and Europe/Middle East/Africa. In the Americas, first-quarter revenues from continuing operations were $9.3 billion, up 2 percent (1 percent, adjusting for currency) from the 2004 period. Revenues from Europe/Middle East/Africa were $7.7 billion, an increase of 7 percent (2 percent, adjusting for currency). Asia-Pacific revenues grew 1 percent (down 2 percent, adjusting for currency) to $5.2 billion. OEM revenues increased 3 percent to $691 million compared with the first quarter of 2004.

Revenues grew in four of IBM’s five industry sectors in the first quarter led by the Distribution sector, as well as growth in sales to Small and Medium Businesses.

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IBM Profits Disappoint
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