Vinman, here's a different take.
Notice that they talk about growth in non service business. You must have missed that.
Wednesday May 13, 7:29 pm Eastern Time
IBM CEO sees potential double-digit revenue growth
By Richard Melville
NEW YORK, May 13 (Reuters) - International Business Machines Corp (IBM - news) may be poised to emerge from years of single-digit revenue growth, powered by its surging computer services business, the company's top executive said Wednesday.
Speaking at IBM's annual meeting with financial analysts, Chairman and Chief Executive Lou Gerstner said computer services would continue to emerge as the engine of growth at IBM in coming years and could help lift revenue growth rates into double-digits for the first time in his tenure.
Revenue growth has been a top concern among some analysts who cover the company now that IBM's organizational turnaround is largely done and expense levels are seen as under control.
IBM's services business, which contributed $5 billion of the company's $17.6 billion in revenues in the first quarter, grew at 28 percent on a constant-currency basis last year.
Even with unit growth rates in the mid-teens, Gerstner argued, the services business would eventually pull overall revenue growth at IBM to double-digit rates, assuming growth at other units held steady at 1997 levels.
''If you take the number I think might be possible for services,'' he said, ''the conclusion doesn't change, you just get there sooner.''
While IBM has repeatedly warned the services unit's growth rate is unsustainable on a long-term basis, Gerstner rejected the idea he would settle for slower growth soon.
''There are a lot of people at IBM who are telling me we can't sustain this 20-plus growth rate (in services),'' Gerstner said. ''I'm not ready to accept that.''
That growth will also translate into profit generation, he said, adding, ''There is little doubt that in 1999, services will become the largest profit contributor of any business unit in IBM.''
While stressing all growth-related comments were intended as long-term in nature, Gerstner's tone was nonetheless a departure from meetings in recent years, when he counseled against growth expectations beyond the high-single digits.
Beyond services, Gerstner pointed to software, storage, microelectronics and the company's original equipment manufacturing business as growth areas.
A recent letter of intent to sell hard drive components to Western Digital Corp (WDC - news), for example, will bring as much as $500 million in additional revenues in 1999 if the deal is completed as planned, he said. Gerstner also let slip that IBM would soon announce several new products in its high-end storage systems business, an area the company has lost market share to EMC Corp (EMC - news).
He did note some current trouble spots, such as the company's business in servers, the high-powered computers that run networks. That business is a mixed picture, he said, with bright spots in supercomputers and IBM's midrange AS/400 model but lackluster results in lower-end systems.
Also under pressure is the company's personal computer unit, which continues to cope with a severe price war.
Issues like those facing some of the company's hardware businesses make it even more important for growth areas to carry the load. Gerstner said he was confident computer services would remain a booming industry for years to come.
''I have been in and out of almost every industry in the world and I have never seen a better growth business than the (information technology) services business,'' Gerstner said.
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