View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
February 10, 1988


By CBR Staff Writer

The annual reports of most companies are of modest interest to their shareholders and to a handful of analysts, but IBM’s annual report is pored over and interpreted line by line within an hour or two of the first advance copies hitting the Street – Wall Street of course. That happened on Tuesday, and the capsule conclusion is that while performance in the market was just as bad as everyone deduced from the year-end figures, the company’s underlying strength is better than anyone expected – if only it could get back onto even a modest growth tack. The two pieces of good news tucked away in the report are that hardware margins in the fourth quarter were 54.4%, up from 51.7% in the third quarter and 52.3% in the 1986 fourth quarter: while way below the 58.4% recorded in 1984, that was a whole percentage point better than analysts had expected, and was good for $1.375 on the share price at $109.125, halting a trickling decline that had started the day after IBM announced its massive reorganisation. The other piece of – related – good news was that selling, general and administrative expenses were 29.9% of turnover, down from 30.2% a year earlier, and in the fourth quarter improved further to 28.7% from 30.6% – those early retirements are really feeding through to the bottom line now. But there the good news ends. Even on the software front, margins fell a shade, although they were still an extortionate 71.4%: software sales rose 23% to $6,840m but what few seem to appreciate in the US is that the agreement under which Fujitsu will get a privileged view of IBM’s operating software code can only be of interest to the Japanese company if it plans to compete with IBM by offering compatible but faster operating software at a lower price. If Fujitsu is able to compete on price, those software margins will start eroding rapidly. US turnover actually fell 1.7% to $24,940m, which means that from where it now stands, IBM is in a strong position to weather a recession without too much damage, but will not show any progress on the profits front unless it can start growing again. Even 5% to 6% growth would be enough to see margins start widening from their present encouraging position – apart from a bubbling Japan, in none of IBM’s major markets is there much sign of upturn.

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.