Tony - IBM's one success story this past quarter - INTEL-BASED products !!!
"IBM's poor showing overshadowed a milestone reached by the company's Personal Systems Group, which returned to profitability for the first time in two years. Although PSG (which includes desktop and notebook PCs and Intel-based servers) returned a relatively small profit of $68 million, the results stand in stark contrast to losses of more than $1.5 billion since early 1998. "
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Analysts weary of IBM's 'blame game'
By Ken Popovich, eWEEK
October 18, 2000 1:38 PM PT
URL: zdnet.com
IBM's quarterly blame game is getting old, increasingly skeptical analysts say.
In reporting disappointing quarterly earnings Tuesday, Big Blue claimed its problems stemmed from a high turnover in its software sales force, a product transition for servers and a component shortage.
The real trouble is that each quarter IBM seems to blame its shortcomings on a new set of problems, according to analyst Laura Conigliaro of Goldman Sachs, who lowered her rating on the company to "market outperform" from "recommend list."
"They've had execution issues in several areas over the last few quarters -- software issues this quarter, HDD [hard-disk drives] a few quarters ago, Unix servers several quarters ago," Conigliaro said. "While they've been able to finesse the numbers to come in near earnings-per-share estimates, they need to do something to address these problems."
Steve Dube, a market analyst with Wasserstein Perella Securities, agreed that IBM's repeated execution problems need to be addressed. After IBM earnings came out, Dube downgraded the company's stock to a "buy" from "strong buy."
"It does seem to always be one thing after another," Dube said. "I think you have to look at the appointment of Sam Palmisano as chief operating officer as the man whose supposed to fix all that and ride herd on a more close basis than IBM has in the past on each of its individual sectors."
Palmisano, a 27-year IBM veteran, was appointed COO in late July and is widely seen as the likely successor to Chairman and CEO Louis Gerstner.
Some analysts are looking to Palmisano, who was credited with building IBM's highly profitable services business, to extinguish troubled hot spots within the company's various divisions.
"We should start to see progress going forward," Dube said, "and I hope we would see significantly less execution issues next year."
While IBM met consensus forecasts for the third quarter calling for $1.08 a diluted share, the company's total revenue increased only 3 percent to $21.78 billion, which was well below consensus analysts' forecasts of $22.4 billion, according to First Call.
The poor showing spurred several major investment companies, including Prudential Securities and Deutsche Banc Alex. Brown, to lower their ratings on IBM's stock.
The day after the earnings release IBM's stock plummeted 16 percent.
"Weak revenue growth was the disappointing item," Dube said. "It was not what you call a buoyant report. I think the company has to prove it can grow revenues faster."
The culprits this time
IBM blamed three factors for undercutting revenue projections: poor software sales, slower-than-expected sales of servers due to a product transition and a shortage of ceramic substrates used in chip modules.
Although IBM dismissed the sluggish server sales and component shortage as resulting from factors largely outside its control, the company was openly critical of itself for disappointing software sales, which fell 3 percent to $2.9 billion.
"Our software sales teams did not execute and did not close the business in the pipe-line at the end of the quarter," said John Joyce, IBM's senior vice president and chief financial officer, in a conference call with analysts.
Joyce blamed part of the problem on the company's inability to retain sales personnel.
"We've experienced significant turnover in our software sales force," Joyce said. "Specifically in Tivoli, attrition has been as high as 25 percent."
Sales of Tivoli, a comprehensive suite of applications designed for enterprise-wide network and systems management, appeared to be most affected, as sales fell 13 percent compared to a year earlier.
While he didn't cite particular reasons for the high turnover rates, Joyce said the company was "aggressively hiring" to address the problems.
PSG back in the black
IBM's poor showing overshadowed a milestone reached by the company's Personal Systems Group, which returned to profitability for the first time in two years. Although PSG (which includes desktop and notebook PCs and Intel-based servers) returned a relatively small profit of $68 million, the results stand in stark contrast to losses of more than $1.5 billion since early 1998.
While hardware sales were up 4 percent to $8.2 billion from a year ago, many analysts were projecting an increase of about 7 percent, but server sales failed to meet expectations.
Sales of the company's top server line, the RS/6000 series, increased during the quarter, but shipments of IBM's more popular selling AS/400 and S/390 servers were lower. Joyce blamed the AS/400 decline on supply constraints and said that S/390 customers actually canceled orders in favor of waiting for the introduction of the Z900, a newer version of the product that was released this month.
"Frankly, we saw more of a pause than we expected by our customers in anticipation of the Z900 eServer," which was launched Oct. 3, he said.
Services were up 4 percent from the year-ago quarter to $8.2 billion, primarily due to outsourcing services in the Asia-Pacific region.
Looking ahead to the fourth quarter, Joyce said he expected IBM to meet earlier projected earnings numbers but admitted the company "also has its share of challenges." |
