IBM is out of the DRAM business, see below. So much for my theory..
Wednesday May 12, 10:11 pm Eastern Time
IBM CEO upbeat on double-digit revenue growth
By Eric Auchard
NEW YORK, May 12 (Reuters) - International Business Machines Corp. (IBM - news) Chairman and Chief Executive Louis Gerstner on Wednesday said the company remains on track for sustained revenue growth in the double digits -- 10 percent or better.
Financial analysts and fund managers attending IBM's annual briefing for Wall Street here left a presentation by Gerstner saying they were confident the computer maker was firing on all growth cylinders.
''The presentation was very upbeat,'' said John Johnson, a money manager with Berger Funds in Denver, as he left the IBM event.
Gerstner encouraged attendees to extrapolate from IBM's momentum over the last seven quarters, noting that the company had averaged 7 percent growth early in this period and 9 percent growth over the last three quarters. He instructed analysts to ''do the math'' to see that revenue growth of at least 10 percent was within IBM's grasp, said Nancy Denin, a fund manager with Legg Mason in Baltimore.
Analysts and money managers said Gerstner reiterated his commitment to remain in the personal computer business, despite its lack of profits, but vowed to exit the computer memory chip business.
Gerstner made clear the company was evaluating closely the strategic purposes and financial returns of staying in the boom-and-bust memory chip business, which has sapped IBM profitability in recent years.
Asked if IBM would be in that business five years from now, Gerstner said it was highly possible that IBM would have a negligible or even nonexistent memory chip operation.
''He's out of D-RAM,'' Johnson said, referring to the computer industry jargon for computer memory chips known as Dynamic Random Access Memory.
Instead, the top IBM executive said the company would continue to shift its manufacturing capacity to production of highly profitable custom logic chips, of which it is the world's No. 2 supplier.
He said IBM's PC unit's bottom line was improving but gave no timeframe for a return to profitability.
He noted that the $1 billion loss in 1998 at the PC business was largely tied to accounting issues and the allocation of costs from other businesses.
He said the PC business doesn't receive many of the services and software revenues it helps to generate, while shouldering marketing costs and other companywide expenses.
IBM Spokesman John Bukovinsky later confirmed Gerstner's comments on double-digit revenue growth, the IBM PC business and its desire to exit the computer memory chip business.
In his remarks, Gerstner took issue with the explosive valuations assigned to Internet stocks and argued that 60 percent of the huge amount of spending expected on e-busineses was estimated to come from computer services work, with the remainder from hardware and software.
IBM is the world's No. 1 supplier of computer consulting and technical services, with nearly double the revenues of its closest competitor.
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