Doug,
My take on things is that this quarter IBM hurt CPQ more in the hardware sector than in services. They had strong growth in the PC/server arena. Helmig of Soundview thinks they took share from Dell and CPQ. Services has been chugging along, but hardware revenue growth was the big surprise. I don't know how much overlap there is at this time in the service businesses of CPQ/IBM, my opinion is that IBM is in a different league than CPQ in the 'run your datacenter' business. Frankly, I hear very little in the press about CPQ service deals, but I constantly hear about IBM winning another multi hundred million dollar contract to run someone's datacenter. The article says they now have a 55 billion service backlog, and are adding to it at the rate of 10B/quarter. Don't forget they also have a 5 billion dollar check coming from AT&T as a result of the IBM network sale. I'm a pretty happy camper today, as IBM and Intel were the only two techs I kept in January. I sold CPQ, AMAT, LSI, and a Dell trading position. (Should have kept LSI in retrospect <ggg>).
Regards,
John
IBM Net Rockets 42%,
Far Over Expectations
Across-the-Board Strength Includes
Upside Surprise in Hardware, PC Sales
By JON G. AUERBACH
Staff Reporter of THE WALL STREET JOURNAL
International Business Machines Corp., buoyed by swelling
demand for services, software and corporate computers, blew
past estimates to report a 42% earnings gain for the first quarter.
IBM was strong across most product lines, but it got a huge boost
from an unexpected 17% increase in hardware sales, far
surpassing the anemic 2% growth analysts were expecting. The
company said it benefited from strong personal-computer sales,
a surprise in the midst of brutal industrywide competition in which
Big Blue had previously been a loser.
Industry analysts said the company is
stealing market share from rivals
including Compaq Computer Corp.,
especially in the lucrative market for
small computer servers.
In after-hours trading on Instinet
Wednesday, the No. 1 computer
maker's shares jumped to $188.50 from
their closing price in New York Stock
Exchange composite trading of $171.875, up $2.125. The
earnings were reported after the close of trading on the Big
Board.
Best in More Than a Decade
"It's a great start on 1999," said IBM's chief financial officer,
Douglas L. Maine, to analysts on a conference call. Still, Mr.
Maine urged analysts not to increase their earnings and revenue
estimates for the remainder of the year.
Steve Milunovich, an analyst at Merrill Lynch & Co., said the
quarter was "a blowout," adding that it was "the best quarter I
have seen from IBM" in more than a decade of covering the
company.
IBM reported net income of $1.47 billion, or $1.55 a diluted
share, for the quarter, compared with $1.03 billion, or $1.06 a
share, in the year-earlier period. The earnings were nearly 10%
better than the $1.41 a share analysts had been expecting,
according to First Call Corp. Revenue rose 15% to $20.32 billion,
more than $1 billion higher than forecasts.
Focus on Internet Sales
IBM said hardware revenue reached $8.58 billion, aided by
strong sales of laptops, small servers and mainframe computers.
Mr. Maine said the gains were due mainly to reduced expenses
and more advantageous arrangements with distributors that
resell IBM computers, as well as a new focus on selling over the
Internet, where the computer company gets better profit margins.
Industry experts said IBM, which lost PC market share last year,
far exceeded industry growth rates in the quarter in the U.S. and
world-wide. PC unit shipments grew more than 20% in the U.S. in
the quarter, well above the 16% industry average, industry
officials said. World-wide growth was about 30%, more than
double the industry average.
"We're delighted with the revenue growth and profits
improvement of our PC business," Mr. Maine said. He said IBM's
personal-systems unit had a loss of $89 million pretax in the
quarter, far better than a $458 million pretax loss in the
year-earlier period. When asked if the company's
personal-systems unit could return to profitability this year, Mr.
Maine said only, "We're optimistic." IBM's personal-systems unit
includes PCs, but it got most of its growth from laptops and small
servers.
'Turned the Corner'
IBM, Armonk, N.Y., said sales of its small servers grew by more
than 50% in the quarter. "They've really turned the corner on
servers," said Gary Helmig of SoundView Technology Group Inc.
Analysts said the dramatic growth of these low-end servers,
which run on Intel Corp. microprocessors, came at the expense of
rivals including Compaq and Dell Computer Corp.
Mr. Maine said it was still too early to predict financial results for
the rest of the year, but he pointed out that the company's
geographic and product diversity gives it a "clear advantage." He
said IBM doesn't expect a slowdown in information-technology
spending in coming quarters, but he didn't rule out the possibility
that some customers could delay hardware spending as they
focus on getting their computers ready for the year 2000.
Big Blue's $7.55 billion in revenue from services-designing,
installing and maintaining computer systems-was slightly higher
than analysts' expectations. Services now contribute about 37%
of IBM's revenue. The services backlog grew to about $55 billion,
aided by $10 billion in new deals in the just-ended quarter that
included agreements with AT&T Corp., CompUSA Inc. and Ford
Motor Co.
Overall, however, the company said its server sales declined
slightly in the quarter. IBM remains the leader in servers, but in the
important midrange market segment-which includes machines
generally priced from about $100,000 to $1 million-IBM is losing
market share to companies including Hewlett-Packard Co. and
Sun Microsystems Inc., analysts said.
IBM said it expects to have gained market share across all of its
PC brands, which includes laptops, desktops and small servers.
The company said revenue from laptops also grew more than
50%. Mr. Maine said growth in desktop PCs was lower, but he
declined to be specific. Analysts said that IBM's strong services
and software support are helping it win hardware sales from
some rivals.
Mr. Maine warned that the competitive environment is "tough" in
North America, but he added that "we have a clear strategy and
we've made great progress."
Software revenue climbed 10% to $2.9 billion, aided by strong
sales of database products and messaging software.
Mr. Maine said IBM spent about $2.1 billion in share repurchases
in the first quarter. The company finished the quarter with $5.36
billion in cash, down about 7% from the year-earlier figure.
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