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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