If the Internet stocks look weak, that IBM fellow probably had something to do with it. He didn't mince any words yesterday!
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Internet Remarks Boost IBM Stock
By Mark Leibovich
Washington Post Staff Writer
Friday, May 14, 1999
Shares of International Business Machines Corp. leapt 9.1 percent yesterday after chief executive Louis V. Gerstner Jr. said the world's largest technology company was reaping sales of $20 billion a year -- nearly a quarter of its total -- from Internet and network-related business.
IBM closed at a record $246 yesterday, up $20.50. The company's stock price has soared 43 percent since April 21, when IBM's first-quarter earnings came in well ahead of analysts' forecasts.
Gerstner made his remarks to a group of investors and financial analysts late Wednesday in New York. In his speech, according to people who attended, he disparaged the Internet-only firms whose stratospheric stock surges have been Wall Street's biggest story this year. His remarks were reported yesterday in the Wall Street Journal.
He dubbed the online stars "fireflies before the storm . . . all stirred up [and] throwing up sparks," according to an account provided by IBM. His company is generating more Internet-related revenue than the top 25 Internet companies put together, he said.
This was Gerstner's sixth annual meeting with analysts since he took over at IBM, and attendees described him as uniquely buoyant about the company's future.
"He was launching more arrows than taking them," said Megan Graham-Hackett, a technology analyst at Standard & Poor's Equity Group in New York. Gerstner also had the momentum of a strong first-quarter performance, in which IBM's profits jumped 42 percent and revenue rose 15 percent. Gerstner "was clearly speaking from a position of strength," she said.
Graham-Hackett called Gerstner "one of the key visionaries of the Internet era," an unusual description in light of IBM's long reputation as the consummate old-line technology firm.
Gerstner discussed the Internet in terms of traditional business models and indicators. He said the true hallmark of Internet success is not stock price but real profits. "We believe in making money the old-fashioned way -- generating earnings and cash," he told the analysts.
Gerstner said the next phase of the Internet will be defined by established companies such as Wal-Mart Stores Inc. and Ford Motor Co. as they more fully integrate the Internet into their businesses.
"He may have sparked a lot of intelligent thinking on how to place legacy companies in the Internet world," said Stephen Dube, an analyst at Wasserstein Perella Securities in New York.
Dube and others dismissed suspicion that Gerstner was hyping the company's e-business accomplishments to seize on investor enthusiasm for all things Internet.
"Two years ago, I would have said [Gerstner] was making a positioning statement," Dube said. "But now it's clearly legit." IBM's Internet focus is paying off in tangible results, he said.
Gerstner also said Wednesday that IBM's clients have not been postponing purchases to focus on solving their year 2000 date problem -- the glitch that may cause computers to mistake "2000" for "1900" and send systems into turmoil. Other large technology firms -- such as Oracle Corp. and Computer Associates International Inc. -- have said that year 2000 concerns have limited what their customers are spending on information technology.
"We keep waiting for a shift," Gerstner said, "and we don't see it."
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