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To: PAL who wrote (112261)	3/25/1999 1:14:00 PM
From: Shadow	Respond to of 176387

(COMTEX) A: Analyst: IBM's PC Business Lost $1 Billion A: Analyst: IBM's PC Business Lost $1 Billion Mar 24, 1999 (Tech Web - CMP via COMTEX) -- IBM's PC business lost almost $1 billion last year, despite cutting more than $1 billion out of its cost structure over a two-year period, a Wall Street analyst said after reviewing IBM's annual report. Merrill Lynch's Steven Milunovich, in a report, suggested IBM dump its PC operationsaltogether and have the likes of Dell Computer or Intel manufacture IBM PCs for the Armonk, N.Y.-based vendor. The computer giant, which has steadfastly refused to detail its profit and loss statements by division, must now do so to comply with the U.S. Securities and Exchange Commission. "The loss in PCs was a key reason hardware only contributed 29 percent of [IBM] pretax profit," Milunovich said. "Although 'real' PC loss likely was less than the $992 million reported when allocated expenses are rejiggered, the fact that IBM did not earn cost of capital the past three years is quite damning," he said. Overall, IBM as a company saw more than $81 billion in revenue for 1998 and a profit of more than $6 billion. While they had reported the more general results earlier, Milunovich was among the first to offer an analysis of the in-depth report. IBM's profit for 1999 would be 50 cents to 75 cents per share higher without PCs, said Milunovich. "At least the assets committed to the PC business have declined from $2.7 billion in 1996 to $1.5 billion in 1998 and capital-spending needs are small," Milunovich said in the report. Over the past year, IBM has taken hits in several key areas with its PC business. Like other PC vendors, the company has seen PC prices spiral downward. However, throughout 1998, IBM executives, including Douglas Maine, IBM's chief financial officer, continued to advise Wall Street, generally, that it had been investing heavily into its new reseller channel-assembly model and taking cost out of the supply chain. By midyear, IBM said 100 percent of its commercial desktops sold in the United States were going through reseller-channel assembly. Recently, the company has been touting survey numbers showing that it has gained share against rival Compaq Computer in the reseller channel for its PC products. IBM executives were not immediately available to discuss Milunovich's report, or the near-$1 billion loss figure he described. Milunovich himself also was unavailable. As much as the PC business was on the decline, 65 percent of IBM's pretax profits came from software and services, he said. IBM Global Services, which has reported $30 billion in annual sales and a $40 billion backlog in contracts, saw its pretax profit margin jump to 11.9 percent in 1998 from 10.4 percent in 1997, and now makes up 40 percent of IBM's pretax profits as a corporation. Servers made by IBM -- including S/390s, AS/400s and RS/6000s -- saw what Milunovich called a "high pretax margin" of 25.7 percent. "IBM's challenge is to improve server growth and find places to invest proceeds from this cash cow," Milunovich said in his report. -0- Copyright (C) 1999 CMP Media Inc. * end of story *