Flat earnings for IBM, but hardware margins are slipping (280)

Essentially flat first quarter earnings from IBM could not conceal a decline in the IT giant?s traditional hardware markets, with both high end servers and AS/400s showing signs of weakness.

Net earnings for the first quarter of 1997 were $1.2 billion, the same figure reported for the comparable period in 1996, but in real terms marking a 1.2 per cent decline. Revenues for the 1997 period were $17.3 billion, up 4.5 per cent on the 1996 figure of $16.6 billion.

Hardware sales accounted for $7.76 billion during the quarter, a 0.7 per cent increase on last year?s $7.70 billion figure, but worryingly for the company, profit margins declined from 35.1 per cent to 32.4 per cent year on year. The PC business was the only hardware unit to increase revenues, with the RS/6000, AS/400 and System/390 divisions all in decline.

Sales were "adversely affected by product transitions, most notably within our System/390 division," admitted IBM chief executive Lou Gerstner. "And by ongoing weakness in Europe which hurt our AS/400 sales."

Total revenues from Europe and the Middle East declined by seven per cent to $5.3 billion, while North American revenues rose 14 per cent to hit $7.9 billion.

The software business was hit by a smaller decline of three per cent to return revenues of $2.9 billion. But there was good news as shipments of the Tivoli systems management software doubled year on year, while the number of installed Lotus Notes seats rose by 1.7 million to hit 11 million.

The success story of the first quarter was the services business, in which revenues shot up 28.1 per cent from a 1996 figure of $3.2 billion to $4.1 billion this year.

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