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Services, Software and OEM Sales Drive IBM Q2.

Services, software and its OEM technology sales were the highlights of IBM Corp's second quarter which saw revenue rise 16% to $21.9bn on revenue that rose 64% to $2.39bn. Interestingly enough it didn't trumpet revenue from e-business strategy, which chairman Louis Gerstner claims accounts for some 25% of overall sales. IBM believes its big opportunity is in its estimate that spending on IT accounts for 20% of the growth in GDP.

PC and mainframe sales were strong but sales of AS/400 fell - it blamed poor execution in Europe - pushing overall sales growth down, although revenue was up slightly year over year. AS/400 sales in the US increased. Mainframe MIPS shipments grew over 10%; revenue grew in double digits. RS/6000 sales rose on the back of the H70 (1,000 sales in three months), doing better than previously, but that wasn't a difficult comparison. Hardware sales were up 22% at $9.4bn. Services grew 15% to $8bn, while software rose 9% to $3.1bn driven by middleware revenue that was up 14%. Excluding mainframe sales, over half of software sales were on third party platforms. Operating system sales were flat. DB2 sales grew 13% and IBM claims it is shipping at three times the industry rate on Unix and NT; faster than Oracle, it believes.

Direct online sales were worth $3bn in the quarter, up ten times on the same period last year. It has 250 large customers buying direct of the 350 it wants by year-end. High end disk sakes were down though mid-range Unix disk and tape sales rose.

PC unit sales and revenue grew over 50% but price competition is hurting and the $3bn personal system group is still in the red. It recorded a pre-tax net loss, albeit less than half of what it recorded last time, even though NetFinity server sales were up 72%. It couldn't supply enough Thinkpads to meet demand, and just under half of the $3bn is PC sales. Web/online sales account for 10%. Pre-tax software income was up slightly, technology sales pre-tax income down, and server income down slightly too. OEM business was up 20% at $1.9bn, mostly on the back of microelectronics and custom logic sales. It completed 11 deals worth over $100m.

The $700m gain came from the completion of the sale of the Global Network business to AT&T in several geographies ($2.1bn gain), got out of its DRAM production venture with Toshiba $104m charge), converting its French DRAM plant to custom logic in a joint venture with Siemens' Infineon ($770m charge), integrating disk design in Japan ($208m charge), relocating tape and disk manufacturing from San Jose, California to Mexico and Hungary respectively, and taking full control of its Micrus CMOS logic venture with Cirrus ($208m charge). It has also decided to replace its own PCs every three years instead on every five; to reflect this there will be a change in the accounting of depreciation of equipment, taking a $241m charge.

America revenue was up 16% at $10bn, or 46% of total revenue (Latin Amercia was up 10% but represented less than 10% of that number), Europe was $6.4bn, 29% of total revenue and up 17% which Asia Pacific was up 9% at $3.6bn. Sales in Australia and China were up. Japan was flat.

IBM Corp reported second quarter net income up 64% at $2.39bn including a gain of $700m over $1.45bn, on revenue that increased 16.4% to $21.9bn. Earnings per share minus the gain were $0.91, or three cents better than the consensus estimate. Actual earnings per share were $1.28. At the halfway mark net income was up 19.4% at $17.96bn over $15.3bn on revenue up 15.9% at $42.22bn over $36.44bn.
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Publication:Computergram International
Geographic Code:1USA
Date:Jul 20, 1999
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