One aspect of IBM Corp’s business has been in a state of suspended animation throughout its woes so far: its turnover has not declined significantly. However that changed yesterday when the company reported first quarter figures showing turnover off 7% at just over $13,000m. And given that total hardware sales plummeted by 19.4% to $5,740m in the quarter, keeping the overall decline to 7% was an achievement in itself, even if within a quarter or three, turnover can be expected to start declining at an accelerating pace. Software revenues rose by 1.1% to $2,520m, but maintenance was off 5.1% to $1,800m; services were the star performer, rising 48% to $1,900m, but the jury is still out and there is a great deal of scepticism that the company can actually make money on all those facilities management contracts. Rentals and financing revenues fell 12% to $1,087m. IBM said it continued aggressively to seek ways to improve profitability, but admitted that sales of the AS/400 as well as of the mainframes declined as users wait for the new models. Chairman Louis Gerstner said that while demand was week and the company, which once dictated the terms of trade to the whole industry, suffered continued competitive pressures on its hardware products, demand in personal computers, workstations and service businesses remained strong.
Personal computers up 40%
The loss for the quarter of $285m, $0.50 a share, was in line with analysts’ estimates, which averaged at a loss of $0.49 a share, and cost controls are seen to be improving. In its conference call with analysts yesterday morning, IBM said that its outlook continues to be difficult and uncertain in light of the destabilisation of its hardware business, and that sales of mainframes declined in a high double digit rate in the first quarter on a year-to-year basis and that sales the AS/400 declined in all major geographies. Stabilisation of high-end systems is several quarters away at best, and the mainframe and storage declines contributed to a $1 per share decline in first quarter gross profits. The double-digit fall in AS/400 business was in the teens. Quarterly cash flow was at break-even. IBM also said unit sales of personal computers were up 40% on a year-to-year basis and the IBM Personal Computer Co was profitable in the first quarter – but does that mean simply that as a quasi-autonomous company, a load of corporate overhead has been lifted from it and dumped elsewhere? IBM also said that demand for the RS/6000 continued to be strong and pointed out that its operating costs are declining and that total operating expenses were down 8.9% on a year-to-year basis and that sales, general and administrative costs fell 10.1%. IBM said that first quarter revenues were down slightly in the US – where the economy was perceived to be improving until the first set of statistics in April, and in Asia, while revenues from IBM’s European operations fell by 13.8%. That seems likely to be primarily down to Germany because the UK was flat on its back a year ago and Italy has not bubbled for some time, while the French recession is only now gathering pace. Costs and expenses rose 14.4% to $7,896m and gross profit margin was 39.5%, a few percentage points below expectations. In the year-ago first quarter, gross margin was 50.8%. The immediate effect of the announcement was to lift the shares a smidgen, and they were up 25 cents at $49.50 at the opening.
