Tuesday, January 20, 2009

IBM: The Elephant's Still Dancing

Both the market and Silicon Valley held their collective breaths today, waiting for IBM to announce their 4th quarter and FY08 results.

Thankfully, they were actually surprisingly good, even allowing for some clever positioning by IBM's - doubtless extensive - finance department. Although revenues were down relative to 2007, IBM included an analysis showing the effects of the extreme currency exchange shifts we've seen over the past months as a way of explaining away the lion's share of the decline. (Just check out the current USD Sterling exchange rate. It's now 1GBP = $1.38. Earlier in 2008 it was more like 1 GBP = $2. Good for expenses; bad for repatriated revenues!)

Mitigating the marginal fall in revenues, profitability actually beat Wall Street's consensus expectations. Net income in 4Q08 grew 12% over 4Q07, a result that's impressive for a business of that size operating in the worst quarters worth of economic data we've seen in many a long year. IBM reiterated that they are on course to further strengthen margins through 2009 and into 2010.

This has to be hugely stabilizing, not just for the tech. sector but for industry as a whole here in the USA. Frankly, it's also testament to the quality of the senior management team at IBM that they can react so quickly to circumstances that have other blue-chip companies heading for the bunker and blaming the economic fall-out raining down on them on "circumstances beyond our control".

Too soon to declare that the fabled green shoots of recovery are springing up all around us, but at least it might be an early sign that the future prospects for 2009 aren't as bleak as we may have feared.

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