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  • lovedove_me2 lovedove_me2 Jan 2, 2003 12:45 PM Flag


    Computer Services Outlook Brighter for 2003

    By Bill Snyder
    Staff Reporter
    12/31/2002 04:23 PM EST

    The logjam of major computer services deals is starting to break up, a development that could signal a better 2003 for IBM (IBM:NYSE - news - commentary - research - analysis) and its major competitors, according to a note released Tuesday by SoundView Technology Group.

    SoundView analyst John Jones Jr. reaffirmed his optimistic call that IBM's fourth-quarter earnings will come in at $1.34 a share or slightly higher, compared with consensus estimates of $1.30, in large part due to the strength of the company's services business, which accounts for 45% of IBM's revenue and profit.

    Jones estimates that services revenue in the fourth quarter of 2002 (excluding revenue generated by the recently acquired PricewaterhouseCoopers consulting business) will hit $9.4 billion, up 4% year to year, and 6% quarter to quarter. He expects PWCC to add another $1.3 billion in services revenue, with $300 million being pass-through that does nothing for the bottom line.

    He also forecasts bookings, or expected revenue over the life of a service agreement, of about $18 billion for the quarter, bringing 2002 bookings to a record $52 billion to $53 billion. Since mid-November, IBM has booked deals totaling about $7.3 billion, including a seven-year, $5 billion agreement with J.P. Morgan.

    For the fiscal year overall, Jones expects IBM to post revenue of $81.4 billion and earnings of $3.97 a share; the consensus is for revenue of $80.7 billion and earnings of $3.91. Last year the company had revenue of $83.8 billion and earnings of $4.58 a share.

    Also scoring big outsourcing deals in the fourth quarter were Computer Sciences (CSC:NYSE - news - commentary - research - analysis), with three major deals totaling $973 million, and Electronic Data Systems (EDS:NYSE - news - commentary - research - analysis), which booked a $1.5 billion deal with ABN Amro.

    Does the fourth-quarter surge presage a more robust 2003? According to Jones, more than $40 billion in deals are up for grabs in early 2003, "materially higher" than in the first part of 2002. Paradoxically, the tight economy makes it harder for companies to approve expensive, long-term deals. On the other hand, outsourcing is seen as a cost saver.

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