View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
July 20, 1998

IBM Q2 SEES SERVICES RESCUE PLUMMETING HARDWARE

By CBR Staff Writer

Hardware revenues took a one billion dollar dive during IBM’s second quarter, while services revenues enjoyed a one billion dollar lift, prompting CEO Lou Gerstner to refer to the quarter as mixed. Net profits were up a fractional 0.4% at $1.45bn while total revenues languished, down 0.3% at $18.82bn. And while earnings per share were up by 5% to $1.50, handily beating the consensus of analysts estimates, this was purely a product of the $1.7bn spent by IBM on repurchasing its own shares. The average number of shares in issue declined by 5% year on year, added to which, the net profit figure also includes a $100m lift from the reduction in IBM’s rate of corporation tax. Hardware revenues, the biggest problem area, were worst hit in the PC sector, said Gerstner, where pricing pressures and excess inventory took a severe toll on profits. But System/390 server sales also slowed in the quarter, blamed on product transition. Overall, hardware revenues shrank 13% to $7.5bn with gross margins declining 5% to 30.3%. But services, IBM’s second biggest business unit after hardware, saw a 22% rise in revenues to $5.6bn with improving margins. This performance was on the high side of market expectations, even though Gerstner has predicted these 20% plus growth rates for his star division throughout this year. But elsewhere, software revenues grew by just 4.6% to $3.2bn while maintenance declined 9.3% to $1.48bn. Such mixed results, said Gerstner, were evidence of, the value and strength of IBM’s portfolio of businesses. In other words, while hardware revenues showed an alarming decline, investors can take heart in the phenomenal growth generated by the services business. Gerstner predicted that the worst performing areas would begin to see some improvement over the remainder of the year, although he was still cautious about Asia, which saw revenues decline by $500m year on year to $3.3bn, but which still accounts for 18% of IBM’s business. Without the gargantuan share repurchase scheme, combined with the significant reduction in the tax rate in the quarter, IBM’s net earnings would have appeared significantly worse. And even before such effects, the group gross margin declined by 1.4% over the last six months.

á

Content from our partners
DTX Manchester welcomes leading tech talent from across the region and beyond
The hidden complexities of deploying AI in your business
When it comes to AI, remember not every problem is a nail

Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.
THANK YOU