October 16, 2001

IBM beats forecasts, servers and services get the credit

Author: JT Smith

- By Dan Berkes -
IBM today announced third-quarter earnings of $1.6 billion, or 90 cents per
share, on revenue of $20.4 billion. Although the numbers were somewhat
better than analysts anticipated, numbers are down by almost 20 percent from
just 12 months ago.Most analysts were expecting the technology titan to report 89 cents per
share profit on total revenues of $20.86 billion. Watchers had downgraded
their earlier expectations, betting that the post-Sept. 11 purchasing slump
would have a serious impact on the company's quarterly report.

Per-share earnings declined by 17 percent from one year ago, when the
technology titan reported earnings of $2 billion for $1.08 a share, on total
third-quarter 2000 revenues of $21.78 billion.

Services led the way for IBM this quarter, with its Global Services
consulting and outsourcing division experiencing a 7 percent increase in
revenue, excluding maintenance charges. CEO Lou Gerstner called it a
"fundamental shift in customer buying behavior" as companies start to spend
more money on mission-critical items such as application and systems
management services from outside companies instead of relying completely on
their own in-house solutions.

Hardware sales were off by 21 percent from last year, and Gerstner admitted
that IBM's PC and hard disk drive market segments are in serious trouble. Even
with the decline, Big Blue remained upbeat about its server division, noting
major market share gains in the Unix end of the market. Much of that success
may be due to the $1 billion IBM committed to development and promotion of
its Linux services.

That promotion, among other marketing and development efforts, has led to an
increased demand for IBM's zSeries mainframe servers. Gerstner said that the
zSeries has seen an overall growth rate of 40 percent for every fiscal
quarter this year, and a 42 percent increase for the recently concluded
third quarter.

IBM believes that part of the reason it saw a shrink in hardware sales this
quarter was the announcement of its new high-end Regatta servers. Announced
in early October, the new servers will be available for purchase during the
fourth fiscal quarter.

Total software revenues grew by 10 percent from the previous third quarter,
to $3.2 billion. Sales of its WebSphere development product jumped by 75
percent, and and DB2 revenues climbed 31 percent. That number doesn't
include revenues gained from the purchase of the Informix database division,
and numbers for that particular area were not immediately available.

Shares of IBM closed Tuesday down 15 cents to $101.85.


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