It’s still a far cry from the four dollars and change that IBM Corp was paying before the fall – and don’t forget that generations of Americans have been brought up to look on the company and its shares as an income play with the added fillip of certain growth – but every little helps, so IBM’s decision to raise the quarterly dividend to $0.35 a share from $0.25 a share had the market whooping for joy and the shares added $1.75 to $117.25 as the operating profits also beat Wall Street consensus estimates. The number before charges was $2.48 a share before charges – but come on, a third of those charges were redundancy costs, and those have become as exceptional as snow in Manhattan in January. The Street consensus was for $2.41 a share. The earnings per share figure after charges was $1.41. Turnover was up a modest 5.7% at $16,600 and the whooping was somewhat shortlived however when traders spotted that hardware sales were flat and AS/400 and mainframe sales were down – for no very good reason – unless there are further hold-ups in the PowerPC AS- based AS/400s. They had a really tough comparison, said Roxane Googin, a Gruntal & Co analyst, kindly, referring to IBM’s record first quarter earnings, net profit and sales in the year ago period. I thought it was a pretty decent quarter; it’s not just a hardware story. IBM said hardware sales were $7,700m, essentially flat with the year ago hardware sales, with RS/6000s, networking products and personal computers making up for the fading proprietary systems. Personal computers were weak in the US, but Europe and Asia did the business here. There was also a slight drop in gross margins, to 40.9% of revenues. Commenting on the figures, We turned in a good but uneven performance, said chairman Louis Gerstner. He noted that turnover grew in all geographic areas, with services up 31%. Shipments of Lotus Notes more than tripled over the same period of 1995 – but that was at a time when Lotus business was all but stalled. Prices for semiconductor and disks and other storage products were under pressure. IBM said currency had a slight negative impact in the quarter, reducing revenues by 1%. As for the pay-out, This dividend decision by the board is part of a well-balanced cash management theory, said Gerstner. IBM will also continue to consider other uses for its cash, including share repurchases, even though, as we have pointed out, the IBM share price is so volatile these days that changes in market perception overwhelm any slight benefit buying back a few million shares may have. When a company has over 550m shares out there, it has to spend enormous sums to make any real difference to the price, and most shareholders would much prefer higher dividends.
