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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1066)	12/23/1998 10:29:00 AM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

INTERVIEW - IBM sees financing arm as growth lever By Eric Auchard NEW YORK, Dec 14 (Reuters) - IBM , on a quest to spark higher revenue growth, is looking to one of its quieter back-office businesses -- its finance and lending arm -- as the next potential engine for growth, the unit's newly-hired chief said on Monday. Joe Lane, who joined IBM Global Financing as general manager Nov. 2, said in an interview he was hired to shake up the business and chart a course for new markets with innovative financing tools that fit IBM's broad strategic priorities. The unit offers in-house financing to customers of the world's largest computer maker at below-market interest rates and on flexible finance terms to make IBM's mainstay hardware, software and services more affordable. It also provides working capital to IBM computer distributors for up-front financing of accounts receivable. "Great big IBM had gotten a little bit comfortable in the financing arena," Lane said, referring to the Global Financing unit's slow but steady revenue growth in recent years. IBM has been moving to build up its software and service businesses while stabilizing core mainframe computer sales in a bid to reach double-digit annual revenue growth, or a rate in excess of 10 percent. By contrast, industry peers like Intel, Microsoft and Compaq, grow at faster than 20 percent a year. IBM Global Financing, with unsurpassed access to cheap money at low interest rates based on its iron-clad credit rating and insider knowledge of the technology equipment business, has traditionally functioned as a credit convenience for customers purchasing IBM goods and services. As a result the unit has only kept pace with the single- digit growth rate of IBM overall. In recent years, the unit has contributed a steady 5 percent of IBM's total, and is seen generating $4 billion of IBM's $80 billion revenues in 1998. "Growing at the pace of the overall company is no longer an option," Lane told Reuters. He vowed "to see what we can do to throw (the Global Financing unit) into a different gear and start to get some real growth." Lane, an outsider to IBM, was hired away from GATX Corp., the transportation leasing giant, where he led GATX Capital, a transport and technology finance unit that grew more than 20 percent a year to $1 billion in revenues since 1994. By contrast, Armonk, N.Y.-based IBM's total 1997 revenues of $78 billion grew only 3 percent over 1996, or 8 percent when adjusted for the negative effect of translating foreign currencies into U.S. dollars. Lane said his goal was to generate double-digit revenue growth, a rate of at least 10 percent a year, at Global Financing, as the division takes on an expanded role in selling the company's computer products and services. As examples of the new thinking, Lane said he plans to expand IBM's financing of start-up companies by taking equity stakes instead of charging higher interest rates to cover the financing risks. In this way, Global Financing could serve as a funding alternative to venture capitalists, who often serve as the primary financing route for high-tech start-ups, or to rival industry heavyweights like Intel, Microsoft or Cisco. The bid to pick up the pace at IBM's lending arm marks yet another example of how IBM under CEO Louis Gerstner has sought to stoke growth at the company's marginalized businesses either by overhauling or selling them. "I'm not accustomed to being an anchor on the ship," Lane said of his plans to speed growth. "I'd rather be a sail." IBM Global Financing has traditionally operated as the captive financing arm of IBM, requiring it to sacrifice some potential revenues and profits for the sake of extending the market share of IBM products and services. Global Financing might also help IBM further penetrate the small- and medium-sized business market or to target companies seeking to hook up to computer supply chain networks, he said. "There's virgin territory out there that's developing in front of us," he said of the constantly evolving ways to structure customer and distributor financing to meet changing market demands. "Someone is going to be their first." "Sometimes you can lead instead of following," Lane said of how financing can be used to create relationships that lead to more sales of IBM equipment and services down the road. "Financing doesn't have to be an afterthought," he said. ((-- Eric Auchard, New York newsdesk, 212-859-1840))