Big Blue Server Sales Slumping
By Richard McCaffery (TMF Gibson)
Computer hardware, software, and services company IBM (NYSE: IBM)
disappointed investors with a slow third quarter as a result of the year 2000
computer glitch, which has kept many companies from making technology
purchases until after the millennium.
Big Blue reported earnings of $0.90 per diluted share (minus one-time items),
compared to $0.78 a year ago, in line with estimates according to IBES
International. But sales rose just 5% to $21.1 billion, up from $20.1 billion a year
ago as the Y2K slowdown hurt sales of large servers and operating systems
software. In Q3 last year, sales rose 8%.
Louis Gerstner, IBM chairman and chief executive, said he expects the slowdown
to continue into the fourth quarter and early next year. After the Y2K shakeout,
however, Gerstner said 2000 has the potential to be a very good year.
The year 2000 will soon be just another speck in the rearview mirror for
long-term investors, and a few quarters of slower-than-expected sales as a result
shouldn't cause anyone to drive off the road. The more serious issue for IBM
seems to be the chunk of market share it's losing to competitors like Sun
Microsystems (Nasdaq: SUNW), according to The Wall Street Journal.
According to data from market research firm International Data Corp., IBM is
giving ground to Sun in the midrange server market, and faces heated competition
from its rival in the large server area, the Journal reported. Remember, last week
Sun reported superhot results for its fiscal first quarter. Revenue jumped 25% to
$3.1 billion and net income rose 39% to $275 million as server sales powered
growth. Scott McNealy, Sun's chief executive, said the growth is coming at the
expense of competitors like IBM and Hewlett-Packard (NYSE: HWP).
Looking at IBM's income statements, external server sales for the quarter
dropped 29% to $1.9 billion, and 11% to $6.4 billion for the year so far. Ouch.
IBM has taken steps to strengthen its server, storage, and Web security groups,
however, including the recent acquisitions of Sequent Computer, Mylex Corp.,
and Dascom.
On the bright side, IBM reported strong results in growth areas such as software
(other than operating systems), original equipment manufacturing, global services,
global financing, and personal systems |
