IBM Corp shares jumped on the New York Stock Exchange Thursday amid optimism about the company’s e-commerce prospects. IBM rose $20.50, or 9.1%, to close at $246 – a new 52-week high – a day after chief executive Lou Gerstner told a group of analysts in New York that Big Blue’s internet-related business now accounts for about a quarter of its overall revenue and is poised for even greater growth. That translates to about $20bn annually from sales over the web, e-commerce-related software and services – which themselves account for about 60% of the fast-growing e- business sector. The company is projecting $3bn in revenue from e-business services in 1999, a 40% increase over last year.
Gerstner insists that IBM is an internet company in its own right, pointing out that his company’s web sales last year were five times greater than those of Amazon.com Inc. He downplayed the importance of so-called pure internet companies, which have high market capitalizations but aren’t likely to see profits. IBM, he said, already books more internet-related revenue and profits than the top 25 pure players combined, including Amazon, eBay Inc, America Online Inc and Yahoo! Inc.
The company sold about $3.3bn in products and services over the web last year, and expects that total to rise to rise to between $10bn and $15bn this year. First-quarter sales amounted to $2.5bn alone, Gerstner said. Growing internet sales also help the bottom line through reduced costs, with savings expected to be about $600m this year. But the real internet boom, Gerstner feels, will come as Fortune 1000 companies web-enable their businesses. And, as IBM will be there to offer the necessary hardware, software and services, it stands to make significant profits from the shift. Thus Gerstner believes consistent double-digit revenue growth is an attainable goal for the company.
Meanwhile, Gerstner voiced some support for IBM’s ailing PC business, which lost about $1bn last year. He asserted that the company will remain in the PC business for a while because the opportunity to offer follow-on services is expected to lead the unit back to profitability as early as the current quarter. The belief is that for every one dollar the company makes selling machines, it can generate another two in services. On a separate note, Gerstner predicted that IBM would exit the DRAM business within the next few years.
