IBM Corp enabled Wall Street to start its day with a smile on its face yesterday, reporting first quarter net profit of $1.04 a share, significantly ahead of analysts’ best estimates – but the figures are not quite as good as they looked, because a change in the basis of recognition of software revenues clearly less conservative than the one IBM previously used means that IBM is comparing with a higher base, and the operating net reported last time as 93 cents a share has been revised upwards to 97 cents. Outright sales were nevertheless down on what was a pretty dim quarter a year ago, but at least the headline figures enabled John Akers to make his characteristically jaunty statement with a little more justification than of late. He declared that Our recently announced plan to reshape IBM into a spectrum of businesses is moving forward aggressively throughout the world, and a better focused IBM is emerging. We continued to take actions in the first quarter to strengthen our product line, consolidate manufacturing and development resources and reduce our overall workforce. Our expenses remain firmly under control. Although worldwide economic conditions remain unpredictable, we are encouraged by our improved performance, particularly in the US, and by the progress we’re making in streamlining the company. For the first quarter of 1992, worldwide turnover was $14,000m, up what is a very modest 3.3% for a company that not long ago was perceived as an engine of relentless growth. Net profits were were $595m, which compares with net profit from operations of $556m in the 1991 first quarter, when the company of course reported a big loss because of the change in the method it used to account for employee benefits. Sales down 2.7% The after-tax margin in the first quarter of 1992 was 4.2% compared with 4.1% in 1991. Akers said Overall, we’re pleased with these results and believe we’re on track toward achieving our financial objectives for the year. Delving into the entrails, sales compared with the first quarter a year ago were down 2.7% at $7,117m. Software revenues, which were intended to be growing much faster by now, continued to disappoint and were up just 4.1% at $2,494m. IBM still can’t shake off the third party maintenance companies, and maintenance was almost flat, up just 0.2% at $1,901m. Services stormed ahead, up 36.4% to $1,289m to account for 9% of the total; IBM would like that percentage to be higher, but at least it’s moving fast in the right direction. Rentals and financing rose by 19.0% to $1,236m. Costs and expenses grew a little more slowly than turnover, putting on 2.6% to $12,869m – but with the relentless cost-cutting that IBM has been pursuing, they should really be going down. The company is expected to have to borrow more, but this is not a significant burden yet – interest payments rose by 8.5% but at $349m remain a tiny 2.48% of turnover – IBM’s balance sheet still looks to be in excellent shape. IBM spokesman Rob Wilson told Dow Jones Professional Investor Report that the company’s first quarter spending for research, development and engineering was below the year-earlier level, though he didn’t have figures. IBM’s selling, general and administrative expenses in the first quarter were also below year-ago levels, Wilson said. Regarding chairman Akers’ statement that the company believes it’s on track for financial objectives this year, Wilson said the company has previously stated it expects revenue percentage growth in the mid-single digits. IBM continues to expect that, Wilson said. Also covered in the financial objectives referred to by Akers is IBM’s expectation that it will maintain firm control over expenses and continue to reduce its world-wide work force this year. IBM has been expecting work-force cuts in the range of 20,000, and we remain on that track, Wilson said. The share price was modestly firmer, up $1.125 at $88.625 in mid-morning trades.
