In another good sign for how the tech industry is holding up, IBM reported solid first-quarter earnings yesterday with profits up 26 percent and revenues up 11 percent.
The New York Times on C3 is quick to note, and The Wall Street Journal mentions halfway into its B3 story, that most of IBM’s business is outside the U.S. and was artificially boosted by the weak dollar, which accounted for seven percentage points of the sales gains. Not counting an acquisition, that means sales were up just 3 percent worldwide.
The Financial Times raises a point that the WSJ and NYT don’t: that IBM is seeing customers become more cautious about spending.
Still, U.S. sales were up 6 percent, as Big Blue “tailored its services and software offerings to help customers cut costs, conserve cash and improve productivity,” the NYT says.
“U.S. companies are not reducing expenditures on technology, and that’s surprising given the gloom and doom,” Carl Claunch, a Los Altos, California-based analyst with research firm Gartner Inc., said in a telephone interview. “Even sales to the financial-services sector went up.”
The NYT reports that worldwide PC shipments were up 15 percent in the quarter, a day after Intel reported increased sales and profit. IBM shares rose to their highest price since 2002.
A silver lining, of sorts
In more earnings news, this time on Wall Street, the WSJ notes in its C1 Heard on the Street column that bad news can be good—when it’s not as bad as expected.
JPMorgan Chase and Wells Fargo reported lots of bad news but nothing too surprising. Profits fell by half at JPMorgan and by 11 percent at Wells Fargo. Revenue at JPMorgan dropped 11 percent; it was up 12 percent at Wells.
You know the climate is bad when you take $2.6 billion in write-downs on bad debt, set aside another $2.5 billion to cover bad loans, report that your prime-mortgage business—not your subprime, these are the “good” loans— is seeing borrowers miss payments at a much faster rate, and still your shares jump 7 percent.
The FT leads its story with news that JPMorgan is looking for more acquisitions, including perhaps Washington Mutual. Bloomberg’s lede says JPMorgan “said the credit-market crisis is almost over.”
In a separate story, Bloomberg reports that JPMorgan CEO Jamie Dimon says “real estate is getting worse” and expects home prices to fall another 9 percent or so this year. It says that JPMorgan saw defaults on its prime mortgages rise to 3.2 percent, though it doesn’t say from what. Fortunately, the FT’s Lex column has it, sort of. It says the delinquencies in that area were less than 1 percent a year ago.
A less sanguine take
The Journal’s David Wessel in his A2 Capital column says that while the risk of utter financial catastrophe is lower than it was a month ago—before the Fed started lending to Wall Street and taking just about any old junk loan as collateral—the real economic pain is yet to peak. He notes that an economic forecaster says the U.S. economy declined in February at an annual rate of 13 percent.
Wessel is on our wavelength here:
But stocks? Predicting their direction is treacherous. If this is truly the worst financial crisis in a generation, is it plausible that the Dow Jones Industrial Average—now down more than 11% from its October peak—has fallen as far as it is going to fall? And if banks are groaning under the weight of bad loans now, further deterioration of the job market and consumer finances can only make matters worse and discourage them from lending.
The bank-earning news sent the Dow up 257 points yesterday.
The WSJ’s Mark Gongloff in a C1 Ahead of the Tape column says “stock and credit markets are once again singing from a different hymnal.” A couple of arcane risk gauges show that short-term loan markets are deteriorating again. Clearly, the credit crisis is “almost over.”
“Something’s going on,” says Michael Darda, chief economist at MKM Partners. “There is stress somewhere based on some institution or some group of institutions. Unfortunately, it won’t be clear until after the fact.”
Sallie sings for her cash drop
Sallie Mae yesterday sounded a different tune than that coming from Wall Street chieftains of late, the Journal reports. It reported a loss in the first quarter and said the markets were the worst in its thirty-five year history and that their needs to be a “near-term, system-wide liquidity solution.”
That’s exec speak for “more government cash drops, please.”
The Washington Post on D3 reports that Sallie Mae cut 1,000 jobs, or 9 percent of its workforce, in the last six months.
Rice crisis in Oz
The NYT fronts a look at how a long Australian drought has just about killed its rice industry, adding to the pressures worldwide that have doubled prices for the grain in the last three months.
Rice production down under is off a whopping 98 percent in the last few years as farmers move scarce water to less water-intensive crops like wine grapes. The Times raises the global-warming specter as a possible explanation not necessarily as the cause for this drought, mind you, but as “consistent with what climatologists predict will be a problem of increasing frequency.”
Researchers are looking for solutions to global rice shortages—for example, rice that blooms earlier in the day, when it is cooler, to counter global warming. Rice plants that happen to bloom on hot days are less likely to produce grains of rice, a difficulty that is already starting to emerge in inland areas of China and other Asian countries as temperatures begin to climb.
Farmers will adapt and grow more rice as prices increase. Problem is, it takes at least a planting season for the impact of that to be felt. How bad will the rice crisis get by then?
Quote of the Day:
“Rice is a staple food,” said Graeme J. Haley, the general manager of the town of Deniliquin. “Chardonnay is not.”
The Journal on A1 reports that another area of rapidly rising prices—energy—is hampering the African economy and causing riots.
The poor in South Africa’s sprawling townships have long been used to power cuts. Now, upscale shoppers here browse darkened malls, while moviegoers are accustomed to outages disrupting shows. In nearby Botswana, plans to bring electricity to rural villages are threatened as the government struggles to maintain power at the nation’s diamond mines.
More than just an Observer
The Charlotte Observer reports that its investigation into kickbacks to a local real estate brokerage has resulted in the firm’s closing.
The Observer reported in September that Realty Place, which said its goal was to “beat up” builders for their home-buying clients, took millions of dollars in fees from the builders themselves and many of them were illegally undisclosed.
The investigation has expanded to involve other Charlotte real estate companies. “It involves quite a few people,” said Thoren, who declined to say if federal officials also are investigating Realty Place. “I think the list is probably going to get longer and longer.”
The Observer has been one of the best papers on the housing bust. If you haven’t read its investigations, check out the archive here.
Grim Reaping
The Times reports on C1 that financier Wilbur Ross is busting out the ol’ vulture wings in preparation for an onslaught of small-bank problems. And he’ll be partnering with Middle Eastern investors, something that’s not likely to go over well when Ross and, say, Saudi Arabia, take the reins at First Main Street.
“I believe there will be 1,000 or more depository institutions that need money,” Mr. Ross said. “They’re of interest to me and of interest to my fund, and I believe they will be of interest to investors in general.”
Several Middle Eastern individuals and government funds are already investors with Mr. Ross’s firm, he said, though he would not name them. Next week, he plans to travel to Abu Dhabi and discuss with investors there the 100 to 200 small banks that he deems promising.
Analysts expect dozens of small banks, savings and loans and credit unions to fail as they cope with mounting losses related to the credit crisis. During the savings and loans debacle of the late 1980s, more than 1,000 small banks were sold.
Big sale soon at Talbots?
Another retailer is in trouble, this time women’s clothing store Talbots. Two of its banks canceled credit lines to the retailer, something the Journal says “is another sign that the credit crunch is rippling though the economy.”
The news sent Talbots shares down 29 percent, and the WSJ notes that women’s clothing retailers, including ones like Chicos that were red-hot not too long ago, are facing slackening sales.
Down, down, down
In economic news, housing starts tumbled 12 percent in March to the lowest level in seventeen years. The drop was about twice as much as economists had projected. Looked at year over a year, home starts have plunged 37 percent since March of 2007. A measure of homebuilder sentiment stayed near a record low.
Consumer prices rose 0.3 percent in March, as expected, or 4 percent on an annual basis. The FT calls the number “relatively modest.”
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.