Dollar Puts Damper On IBM

Those looking to tech bellwether IBM for evidence of a significant uptick in corporate IT spending likely were disappointed last week when the company reported its financial results.

A House Divided, pie chartAt first blush, IBM's results seem impressive. Fourth--quarter net income rose 12% to $3.1 billion, and full--year revenue increased a solid 8% to $96.5 billion. The picture changes when gains attributable to the weak U.S. dollar are excluded. In constant currency, IBM's 2004 sales grew just 4%.

IBM's software unit saw a 2004 sales gain of only 1%. Its Global Services arm grew just 4% in constant currency. Hardware rose 7% to $31.2 billion.

Some analysts believe a pickup in IT spending is in the future. "We continue to look for a meaningful improvement in large enterprise spending in the middle part of 2005," Prudential analyst Steve Fortuna said in a report issued last week. To see sustained, profitable growth, IBM will need more deals like the one it signed last week—a $100 million contract with U.K. insurer Norwich Union Life for mostly high--margin consulting services. It helps vindicate IBM's $3.9 billion purchase of PricewaterhouseCoopers' consulting arm in 2002.

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