Personal systems staged a major comeback in IBM Corp’s first quarter, while AS/400 and RS/6000 sales declined though mainframe revenue was up slightly. The services and software businesses remain the strongest over the long-term. IBM reported first quarter net income up 50% at $1.46bn over $1.03bn on revenue up 15% at $20.31bn over $17.61bn. Earnings per share were $1.55, beating consensus estimates by $0.09. IBM warned that the strong quarter was not necessarily the way the rest of the year would play out; an implicit suggestion that analysts should not raise their expectations on the back of it. It says it will face a difficult comparison with the second half of last year. Y2K is also looming though it admits the lack of noise on this subject so far has been eerie. It expects the $1,000bn IT industry will grow by around 9% this year, the same as 1998.
Americas revenue, now including North and Latin America, was up 13% at $8.8bn – 43% of total revenue. Latin Amercia revenue is less than 10% of Americas revenue and was down 10% on constant currency. Europe, Middle East and Africa revenue was up 20% at $6.3bn (unusually the UK was one of the strongest markets); Asia Pacific grew strongly compared to last year at $3.5bn, up 20%, due to strong Korean and Australasian performance and moderate growth in Japan. Little of the Japanese growth was due to consumer spending. It’s still a wild card, IBM believes. We need to see the Japanese consumer begin to spend more. Until that time we will remain cautious, it says. OEM business was up 5% at $1.8bn, 9% of total revenue. In the technology group, IBM’s microelectronics division was hit by depressed DRAM pricing pressure and the manufacturing of fewer iAPX-86 compatible chips, while storage revenue increased. OEM storage is now worth $1bn.
Hardware revenue, driven by PC sales, was $8.6bn, up 17%. Services was up 19% at $7.6bn with Europe and Asia Pacific leading the way coming in well above the average growth mark. Software was up 10% at $2.9bn. Global financing was down 2% at $0.7bn while other services were down 6% at $0.6bn. Hardware gross margins were down 1.5% at 27.2%. Services margins were down 0.7% at 26.3%; software margins were up 1.4% at 81%; global financing margins were 55.9%, up 8.8% and other was down 0.5% at 32.6%.
Within servers – revenue was down overall on last year – S/390 revenues were up slightly. MIPS ships increased by over 80% compared with last year and the installed MIPS bases is now 30% bigger than it was last year, IBM claims. The installed base may now be near-saturated with G4/G5 systems, but IBM claimed more winbacks, surging demand for business intelligence applications on S/390 and increased sales for e-commerce. Growth was not driven by sales against Unix. US and European S/390 sales were strong while Japan declined. RS/6000 and AS/400 sales declined. Strong RS/6000 sales in Europe and Asia Pacific were more than offset by a miserable quarter in the US. AS/400 sales were disappointing, IBM said.
NetFinity and ThinkPad sales drove growth over 50% in the PC company, which was profitable in the quarter. Shipments out of the channel increased 25% year over year and sales into the channel increased 31% sequentially. NetFinity sales were up by 100% – although analysts seem to think that business is still $80m to $90m in the red. IBM says it has 50,000 people trained to sell NetFinitys. It says NetFinity sales to small and medium sized businesses is expected to grow significantly over the year as well as direct sales. It says it expects to have gained share in PCs in the US, Europe and Asia Pacific. Total PC sales in the quarter were $3.6bn, compared with $4.4bn in the fourth quarter which is always stronger. Online PC sales grew significantly: it expects to do between $10bn and $15bn online hardware, software and services sales in the full year.
IBM said database, Lotus Notes and transaction processing sales drove the growth in its software business. It said that excluding sales on IBM and non-IBM
S/390s, 50% of middleware sales were on non-IBM platforms. S/390-based middleware sales account for 60% of total middleware sales. IBM continued to spend heavily on buying back shares paying $2.1bn to buy back 12 million shares – and helping earnings per share – leaving 907.4 million shares outstanding compared with 950.2 million in the first quarter of 1998.
