IBM Net Leaps, but Picture for Industry Dims

International Business Machines Corp. reported a sharp jump in quarterly earnings Tuesday, but analysts said the results from the computer giant and two other leading high-technology firms point to continued sluggish growth for most of the U.S. electronics industry.

Although net income at IBM was up 39% to $1.34 billion, the apparent improvement is misleading, analysts said, because last year’s second quarter included a $600-million one-time charge for restructuring expenses. Apple Computer, meanwhile, said earnings rose just 5%, and chip builder Intel Corp. reported a 24% profit decline for the quarter.

“Aggregate growth in the (computer) industry has been cycling down since mid-1987,” said Rick J. Martin, an analyst with Prudential-Bache Securities. “We are nearing the bottom, but we have not bottomed out yet.”

Market Unenthusiastic

Both IBM and Apple were hit by the strong dollar, which hurt the revenue and profit performances of their critical overseas operations. Intel, for its part, said its poor results were due in part to a $17-million charge for the shutdown of its Livermore, Calif., manufacturing facility. That move, also announced Tuesday, will result in the transfer of some of the plant’s 400 workers and the dismissal of the others.

The stock market was unenthusiastic about the reports: IBM’s shares declined $1.25 to close at $114.75; Apple fell $1.50 to $39.25, and Intel dropped $2.50 to $28.875.

IBM’s performance for the quarter was closely in line with analysts’ expectations, primarily because IBM has become adept at predicting its earnings and signaling to Wall Street what it expects. Net income reached $1.34 billion for the three months ended June 30, while revenue rose 10.3% to $10.12 billion.

Most observers were upbeat about the overall results, particularly in light of the difficulties overseas, but said they did not indicate that IBM was on the road back to the continuous profit increases it experienced earlier in the decade. The company has restructured many operations and revamped its entire product line over the past several years.

“IBM is holding market share or gaining market share, and that’s different than it was a few years ago,” said Jay P. Stevens, an analyst with Dean Witter Reynolds. “We are just hoping for consistency” in the quarter-to-quarter earnings.

Stephen Cohen, director of research at Soundview Financial Services, said IBM sales were strong in all three of the main computer hardware segments: personal computers, minicomputers and mainframes.

“In no way is this the start of something good,” Cohen said, adding that “the U.S. sales force is not executing as well as it might.”

At Apple Computer, earnings for the fiscal third quarter ended June 30 rose 4.9% from a year earlier to $96.1 million, while revenue leaped 26% to $1.25 billion.

Observers initially had mixed opinions about the results, and the reviews were not improved when Apple executives were noncommittal about future expectations in a conference call with Wall Street analysts Tuesday. “The report itself was not bad: sales were below estimates, but that was offset by a rise in gross margins,” said John T. Rossi of Alex. Brown & Sons. “But they’re going through a major product transition now to the Mac II CS, and that has made them cautious.”

Intel reported a 24% decline in profit for the quarter to $99.3 million, while revenue climbed 2.6% to $747 million.

Millard Phelps, senior technology analyst at Hambrecht & Quist, said that, despite the poor results, “Intel remains deceptively strong.” The strength of the IBM-compatible personal computer market and new products next year will help the company, he said.

Intel said it was shutting down its Livermore facility because its equipment is outdated and cannot be upgraded economically.