IBM Q1 Earnings In-line, Shares Down in After-hours; Goldman Cuts to Neutral

IBM reported Q1 net income increased 8% to $1.84 billion, or $1.21/share, on revenue growth of 7% to $22b. Analysts polled by Thomson, were looking for $1.21/share on sales of $21.9b. IBM does not provide current quarter guidance, but did say it sees full-year EPS increasing 11% (to $6.73). Q1 revenues in the Americas were "disappointing" at +1% to $9.1b, hurt by slower capital spending in the U.S. Goldman Sachs subsequently downgraded IBM to "neutral" from "buy", citing weakness in the U.S. (its largest market), commenting: "This and IBM's comment about a weaker U.S. spending environment, coupled with similar comments from other companies, make it unlikely that the stock will be able to outperform in the near term." Sales in Europe/Middle East/Africa increased 13% to $7.6b and Asia-Pacific was +10% to $4.5b. Services accounted for over 56% of global revenue, up more than 7.5% year-over-year. Shares of IBM gained 1% to $97.12 during normal trading, but last traded 0.8% lower to $96.33 in the after-hours (range: $95.80 - $99.25), following its earnings release, on volume of about 1.25 million.

Sources: IBM Q1'07 Earnings Call Transcript, Press release, Bloomberg, MarketWatch [i, ii], The Wall Street Journal
Commentary: IBM and Yahoo: A Look At Post-Earnings Performance • IBM Earnings Preview: Citi Expects EPS Below Consensus • IBM Announces 3-D Chip Stacking
Stocks/ETFs to watch: International Business Machines (IBM). Competitors: Hewlett-Packard (HPQ), Microsoft (MSFT), Electronic Data Systems (EDS). ETFs: Internet Architecture HOLDRs (IAH), DIAMONDS Trust, Series 1 DIA, iShares Goldman Sachs Technology (IGM)
Related: Earnings presentation and prepared remarks [pdf]

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