Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Harry Landsiedel who wrote (24528)	4/17/1998 1:50:00 PM
From: John Koligman	Read Replies (4) \| Respond to of 97611

Good afternoon Harry. I certainly don't want to steal Rude's thunder, but I do have some numbers for IBM's business sectors that will help answer your question at least as it relates to IBM. The services sector is one of IBM's few growth engines, but it is lower margin (for IBM) than it's other key businesses. The numbers from IBM's latest annual report show the following: 1997 1996 1995 Software revenue 12,844 13,052 12,657 Gross profit 9,060 8,970 8,229 Gross profit margin 70.5% 68.7% 65.0% Hardware revenue 36,229 36,616 35,600 Gross profit 12,691 12,920 13,738 Gross profit margin 35.0% 35.6% 38.6% Services revenue 19,302 15,873 12,714 Gross profit 4,021 3,226 2,672 Gross profit margin 20.8% 20.3% 21.0% Total IBM sales (percentage) Hardware 46.1% 47.8% 49.5% Software 16.4% 17.2% 17.6% Services 24.6% 20.9% 17.7% Total Gross margin 39.0% 40.2% 42.2% All numbers are in billions, and I did not include two other components of IBM's business, whice are maintenance and rentals/financing as they are relatively small percentages. So, the story here is that profit margins are significantly higher on hardware and software, but those businesses have been declining for IBM. Keep in mind these margins include the mainframe hardware and software business, which are higher profit than the PC end. As for CPQ, I would think that service margins in the 20+% range would be OK, I'm guessing that CPQ's margins are lower than that in all but the server hardware business, but perhaps someone could correct me if I am wrong on this. Guess I should check the annual report, will do so after this update. John The interesting thing is that if you look at the numbers, every revenue category is down for 1997 (including maintenance and rentals) except for services. Gross profit margin has been declining over the past three years also. Yet, IBM is a perfect example of how to manage a business with the financials in mind. The stock has done extremely well over the past few years, but it has not been due to growth. It's been stock buybacks and expense cuts. But, wall street apparently loves it, and loves Gerstner. He is delivering the profits (for now). The future will be interesting....