IBM, eBay: The Boost from Overseas

A weak U.S. dollar and fast growth abroad are helping tech companies handle the economic slump—and beat analyst expectations

by Catherine Holahan

Two tech bellwethers showed on Apr. 16 what it takes to shrug off the U.S. economic slump: international exposure and a weak U.S. dollar. IBM (IBM), a global seller of software and computer services, and eBay (EBAY), the online shopping giant, both released first quarter results that exceeded analysts' expectations and raised respective forecasts for this year's financial performance. In both cases, sluggish U.S. gains were offset by faster growth abroad, allaying concern over how well tech titans can weather the storm.

Electronic commerce pioneer eBay reported profits of $460 million on $2.19 billion in revenue, a 24% increase from the prior year. Fueling the growth was growing demand for U.S. goods abroad and strong activity on eBay's international sites. About 54% of sales on eBay's shopping sites and 43% of revenues from eBay's PayPal payments business came from markets outside the US. "There is no doubt that there are uncertain economic times ahead of us that will impact retail and could impact e-commerce," newly appointed eBay Chief Executive John Donahoe said in a telephone interview following a call with analysts. "We are glad to be a global business…and the U.S. is on sale right now given the relatively weak dollar."

Despite the U.S. slowdown, eBay raised its guidance for the full year. It now expects net revenue of $8.7 billion to $9 billion for the full year, with roughly 25% margins. That's up from the $8.5 to $8.7 billion in revenue eBay had projected in January. Shares of San Jose (Calif.) eBay rose 0.4%, to $32.12, in extended trading on Apr. 16.

IBM's surprise strength

Likewise, IBM said net income rose 26%, to $2.32 billion, or $1.65 a share, beating analysts' expectations for per-share earnings of about $1.45. Sales increased 11%, to $24.5 billion, also exceeding the analyst forecast of $23.6 billion in revenue. "Big Blue has proven that it can do well at a time of boom as well as doom," Annex Research analyst Bob Djurdjevic wrote in an Apr. 16 research note.

Like his counterpart at eBay, IBM Chief Executive also raised full-year projections. "IBM had a very good quarter, and a good start to 2008," he said in a statement. "These results reinforce our confidence in IBM's ability to perform well in a dynamic global economy" and reflect the company's efforts to expand in overseas markets, he said. IBM boosted its forecast for per-share earnings in 2008 to at least $8.50, a 25¢ increase from the target it issued in February.

About two-thirds of IBM's revenue comes from abroad, helping IBM benefit from areas of the world that are growing more quickly than the U.S. IBM also attributed gains to weakness in the U.S. dollar, which boosts the value of overseas revenue. Excluding foreign exchange impact, revenue would have risen 4%, IBM said. Sales in the region that includes Europe, the Middle East, and Africa increased 16%. In Asia-Pacific, revenue gained 14%. Both regions outpaced the Americas, where sales climbed 8%.

The company exhibited strength even in financial services, which rose 14%. IBM said in January that it detected signs of weakness in the sector, which has been buffeted by losses amid the mortgage and housing malaise. IBM's results show "the banking segment woes are company-specific, not generic in nature," according to Djurdjevic. Shares of Armonk (N.Y.) IBM gained 2.5%, to $123.44, in extended trading.

Changes at eBay

As upbeat as eBay executives were about overall performance, they underscored the challenges facing Donahoe, who replaced Meg Whitman as CEO this month. On his first call at eBay's helm, Donahoe reiterated plans to make eBay's shopping sites more buyer friendly and reaccelerate growth in the company's core business.