One key advantage Louis Gerstner has given himself over poor old John Akers is that where Akers still whistled cheerfully under all adversities like a boy scout however bad things got, and suggested that there were good times just around the corner, Gerstner repeats like a mantra We’ve got to do better than this, however much things seem to be improving. The result is that every sign of progress in IBM Corp’s fortunes is received as a pleasant surprise, and there were plenty of signs of progress in yesterday’s third quarter figures as a sold-out position in mainframes enabled IBM to make prices stick, and Europe began to show real signs of recovery, while the AS/400 put on a spurt that most of the mid-range watchers thought was beyond it. The $710m net profit for the quarter translates to $1.18 a share after preference dividends are deducted, where the consensus average on Wall Street was for 94 cents a share. More dramatically, IBM was able to grow turnover 8.6% to $15,400m compared with figures restated for the sale of the Federal Systems Division. Oddly, the only part of the world where turnover did not rise was Latin America, hardly a powerhouse of growth and volume for IBM at the best of times. Louis Gerstner allowed himself to concede that said the results were particularly gratifying, because in addition to margins stabilising, revenues were rising in most parts of the world, and Equally important, there is evidence that we are moving into the second phase of the transformation of IBM, Gerstner said, before the mandatory warning Nevertheless, we are far from our targeted levels of performance.
Exceed supply
European sales were $5,300m, up 13% from last year, while Asia-Pacific business jumped 16% to $2,800m as the tigers growled. In the US, things were a lot less rosy, with revenues up just 3% to $6,000m; Latin America fell 3% to $700m. Currency had virtually no impact on net results in the quarter, gains being largely offset by currency-related increases in costs and expenses. Gross profit margins continued to stabilise at 39.9%, compared with 39.2% a year ago as the cost-cutting begins to feed through to the bottom line. Hardware sales were up 13% in the quarter and mainframe revenues increased for the first time since the second quarter of 1992 – mainframe demand continued to exceed supply, and shipments increased significantly. The drama was in the AS/400, where the business grew by 25%, but once again, although great things had been expected of the RS/6000 last quarter, the business only continued to grow significantly. IBM is still finding it hard to translate disk storage technological leadership into healthy sales and profits, and the company says that not only did demand exceed supply for storage products, but storage product revenues actually fell as a result of price cuts. Personal computer revenues increased internationally but the US results remained sluggish – that sounds like a euphemism for were dismal. IBM Microelectronics is beginning to become a significant player on the world semiconductor stage and its performance was the key reason that OEM sales more than doubled, although no number was put on them. Software revenues increased 4% to $2,800m and service revenues jumped 27% to $2,300m. Maintenance fell 1% to $1,800m and rentals and financing dropped 22% to $800m; total expenses fell 13%, or $700m from the third quarter of 1993. The good news was already in the share price, and the it traded a few cents either side the $75.50 mark.
