IBM Corp made encouraging progress on the road to recovery with its first quarter figures, and the headline news is all extremely positive, with turnover up a sharp 17.7% at $15,700m compared with a weak first quarter a year ago, and earnings per share of $2.12, far more than anyone on Wall Street dared dream of – the best guess had been revised upwards to $1.53 after the company’s meeting with analysts last month. Turnover, the $1,289m net profit and earnings per share were all, a little surprisingly, an all-time record for the first quarter at IBM. The company says earnings benefitted from revenue growth across all key product areas and geographies, including personal computers, workstations and mainframes. We had a strong quarter, said chairman and chief executive Louis Gerstner: cost reductions have benefited us for more than a year, but now our revenue growth indicates that our technology and marketing strategies are taking hold and beginning to produce fundamental gains. The personal computer, RS/6000, AS/400, mainframe and storage systems businesses all grew, with the personal computer business making substantial progress in the quarter, although the company acknowledges that lot of work remains to be done before it can be satisfied with its performance. Distributed software also saw strong growth, with very strong growth in shipments of OS/2 Warp. Service revenues grew more than 30%. The currency effect was good for six percentage points of the growth, but the company points out that these revenue gains were largely offset by corresponding increases in costs and expenses associated with the fadeaway dollar – or the soaraway yen and mark. In North America, revenues rose 16.6% to $6,700m. In the Europe/Middle East/Africa segment, grwoth was 15.8% to $5,400m, but Asia Pacific saw the strongest surge, with growth of 26.4% to $2,900m. Latin America was weakest, up only 8.4% at $657m. Total hardware sales rose by 23.3% to $7,700m, while software rose 11.2% to $2,900m. The white hope services business grew 33.2% to $2,400m but maintenance grew just 3% to $1,800m and rentals and financing fell 5.4% to $869m.

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OEM sales continued to grow, although the figures were not specified, and the storage side is still failing dismally to pull its weight here because most of the growth was in semiconductors. Total expenses declined 3.4% in the quarter, or 7.9% on a constant currency basis and from year-end 1992 to March 1995, expenses have been cut by a total of $6,500m; its goal is $8,000m. Old-style IBMers will feel uncomfortable that research and development was slashed 17% and is now just 5.8% of turnover, down from 8.2%, and mutter that this is a level more appropriate for a cookie company. Gross profit on hardware was 37.9%, up from 30.1% a year ago, on software, it was 65%, up from 62.7%, but on services it was still only 19.3%, up from 15.3%. It fell to 54.5% on rentals. Overall gross margin improved to 42.4% of turnover compared to 39.2% in the first quarter 1994, after adjusting for $296m in software accounting charges. The company ended the quarter with $10,500m in cash, about flat with the fourth quarter of 1994, despite spending $1,400m for common and preferred stock buybacks and $900m in restructuring costs. Core debt in support of operations and excluding customer financing, remained virtually flat at $2,900m, all of which will leave shareholders wondering about the dividend and others wondering whether a big acquisition is in the plan.