Letter to Barrons Today:
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Big Blue's True Colors
To the Editor
In The Trader column of April 26, Jacqueline Doherty gives IBM kudos for its "better than expected earnings." Since lowering the tax rate, reducing SG&A expenses as a percentage of revenues, paring R&D, borrowing money to buy back stock and diminishing the company's once huge cash hoard are all signs of competence at "managing earnings," IBM does deserve congratulations.
However, the lessons that many folks took from this tour de force do not follow. The most wrong-headed interpretation, unsupported by the numbers, was that IBM's showing proved that Compaq's woes were not an industrywide problem. It just ain't so.
IBM's PC revenues were down 20% from the fourth quarter, much more than the usual seasonal dropoff. Compaq's revenues on PCs dropped less than 10% during the period. IBM lost $89 million on personal systems; Compaq earned more than $150 million on personal systems. And, since PCs were the only "bright spot" for hardware at IBM, that speaks poorly for sales of other types of computers.
Yes, IBM management deserves praise for turning a poor operating quarter into an accounting success, but we must be careful about the inferences we derive from Big Blue's sharp-pencil expertise.
MICHAEL D. BURKE
Houston
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