Like a massively parallel processor that manages to achieve its peak performance by making all the processors go bang at the same time, just about everything went right for IBM Corp in the second quarter, and second quarter earnings per share soared 160% to $2.97, way ahead of the $2.40 a share Wall Street had been forecasting. Currency was good for seven percentage points in the quarter, and even personal computers chipped in. Net profit was up 147% at $1,700m – per share earnings rose more because IBM bought in some of its shares. Cash generation is currently superb: despite spending $1,400m on its own shares and $500m for retructuring, cash held at $10,500m. That figure is before $11,278m of short-term debt, up 17.8% in the quarter, and $11.749m of long-term debt, reduced by 6.4% to leave an overall increase of 4.1%. And peak GigaFLOPS are seldom achievable for long, and IBM warned that there are a few signs that demand may be slowing and that price pressures are increasing in the US, while a number of key European countries remain sluggish, and it repeats its warning that going forward, year over year financial comparisons will become more difficult in the second half.

Demand for mainframes has fallen

Moreover demand for mainframes has fallen off rather more sharply than in recent projections, and the company now says it will meet demand for high-end mainframes, where until a week or three ago it had been saying in public it would be sold out until early next year. In an internal memo to mainframe sales executives last month, IBM said the supply of its bipolar mainframe models would be ample to meet customer orders in the current third quarter and beyond. This is a worry because IBM still derives half its profit from mainframes and related services and equipment. Of the explanations being hazarded, a combination of weakening of the US economy, coupled with customers that had put their orders in the queue to assure themselves of a mainframe only if they needed one and then decided they didn’t, seem the most likely. IBM also increased production somewhat to meet demand this year. In the second quarter, overall turnover jumped 14.2% to $17,500m, to set a new second-quarter record. Louis Gerstner seems to have got over the euphoria he was exhibiting at the time of the first quarter figures and at the annual meeting, and says Despite everything we have accomplished, it’s important to recognise that maintaining our momentum will require continued progress in all areas of the company. Our business improved each quarter last year, which will make year-over-year financial comparisons more difficult as we move into the second half of 1995. He adds that IBM must keep meeting its cost-reduction goals. IBM said revenues increased in all geographic areas in the quarter, after the impact from currency. In North America, turnover was up 8.9% at $7,100m; Europe/Middle East/Africa grew 11.5% to $6,100m, and the Asia-Pacific region was the star performer with a 30.9% jump to $3,600m. Latin America has recovered from the Mexico effect, and even there, sales jumped 19.7% to $742m – but if you factor out currency, sales growth in North America, Latin America and Asia-Pacific ranged from satisfactory to strong, while Europe was disappointing. Total gross profit margins were 43.5%, a very strong bounce from 39.8% a year ago and up on the 42.4% in the first quarter. Hardware sales totalled $8,600m in the second quarter, up 12.5% on a year ago. Sales of personal computers, RS/6000s, AS/400s and storage products increased significantly compared with a year ago. Mainframe demand remained strong, as measured in MIPS, but as expected, overall mainframe revenues declined versus the year ago period, due to price reductions. Total software revenues were $3,100m, up 12.7% on a year ago, while service revenues jumped 32.6% to $3,000m. Maintenance revenues grew 4.5% to $1,900m, while revenues from rentals and financing, which have been declining year on year for several years, turned around and grew 4.9% to $882m – no-one wa

nts to own those CMOS mainframes – residual values are going to be vestigial, so let IBM Credit Corp carry the risk on its books seems to explain that one.