IBM ups dividend; CEO praised, challenged
[Bloomberg placed a very different spin on the IBM annual meeting
than what Reuters presents below. The Bloomberg account emphasized
the absence of top line growth, combined with a 13% decline in
earnings at the bottom line.
My view is that IBM, like GM, is correctly focused on increasing shareholder value, rather than increasing revenues at an even lower level of profitability. Note, in the article below, that Gerstner deflects a shareholder's advice that IBM seek to "diworsify" (a mistake that many large cap companies, including IBM and GM, made in the 1980's). -- RR]
Tuesday April 28 6:26 PM EDT
By Richard Melville
CHICAGO (Reuters) - International Business Machines Corp. raised its
dividend by 10 percent and expanded its stock buyback program by $3.5
billion on Tuesday, as Chairman Louis Gerstner reviewed the past
year's efforts to remake the world's largest computer company.
Addressing an audience of about 500 at IBM's annual meeting, Gerstner
reviewed the record earnings, revenues and share price IBM attained in
1997.
He aimed higher praise at the technical successes IBM enjoyed,
including breakthrough technology allowing copper to be used in wiring
chips and the use of IBM technology to guide the rover deployed on
Mars during the Pathfinder mission.
"In terms of business performance, 1997 was a solid, a very solid
year," Gerstner said. "In terms of technology performance, I think we
can call it a great year."
Gerstner faced a friendly audience, and many of the shareholders
prefaced questions with words of praise or thanks for the turnaround
IBM has accomplished during his tenure.
But some shareholders pressed Gerstner for details on how IBM planned
to spark faster growth.
One attendee, Kul Kapoor from Las Vegas, was among several who used
their question time to urge Gerstner to be more aggressive in seeking
acquisition or new business initiatives.
"The No. 1 thing in life is taking risks and sometimes it looks like
IBM doesn't want to take risks," Kapoor said after the meeting.
Gerstner offered few specifics in terms of pointing to new growth
opportunities for IBM but did single out two general areas he called
the most important available to the company.
The first was one he referred to as "deep computing," a segment that
combines very fast computers with sophisticated analytical software.
IBM has already won major contracts in this segment, including a
high-profile deal to develop a supercomputer the U.S. Department of
Energy plans to use for nuclear weapons simulation testing.
Others could emerge as drug companies use the technology to simulate
chemical reactions, for example, or as more companies adopt data
mining, where massive amounts of customer and sales information are
sifted to discern trends used in forming marketing strategies, he
said.
The second other area, a somewhat more nebulous one he called
"pervasive computing," is emerging as computers shrink ever smaller,
he said. The progress on size makes possible embedding computers in a
wide range of products, he said, ranging from household appliances to
cars.
The pervasive computing area is one where Sun Microsystems Inc.'s Java
programming environment will be a major factor, Gerstner said, at one
point urging Sun foe Microsoft Corp. to drop its battle over the
development of Java.
"We believe strongly in Java and hope Microsoft will embrace Java, 100
percent pure Java and join the rest of the market," he said.
Gerstner also disputed the idea that IBM could match the meteoric
growth rates of other technology companies.
"Keep in mind that as an $80 billion company, we will never grow at
the kinds of rates that Internet companies, for example, will," he
said.
As for acquiring competitors like Unisys Corp., as investor Kapoor had
suggested, Gerstner said, "We probably grew a Unisys last year in our
services business."
He also noted that IBM had made 45 acquisitions since 1995 and would
consider others, although the company would proceed cautiously and was
often "as pleased with the acquisitions we did not make as the ones we
did."
IBM's quarterly dividend was increased to 22 cents a share from 20
cents, effective with the June 10 payment to shareholders of record as
of May 8. Including this rise, IBM said, its dividend has increased 76
percent since 1996.
Since Jan. 31, 1995, the company said, it has repurchased about $20
billion of its common stock. It bought back $1.8 billion in the first
quarter and had about $900 million left under its existing budget.
IBM had about 943 million shares outstanding at the end of its first
fiscal quarter.
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