IBM turns in strong Q2

Plus a few exceptional items to boost the coffers

After IBM caught financial analysts 10 per cent too low with its first quarter's results, they put the squeeze on and estimated 88 cents for IBM's latest quarter. In the event, IBM still pipped them again by returning 91 cents on sales of $21.905 billion (up 16 per cent on a year ago, and 8 per cent on the previous quarter). Net income of $2.391 billion was up 65 per cent on a year ago, and 63 per cent on the previous quarter. There were some important exceptional items however. There was $2.1 billion from the sale of Global Network in the US, British Isles and Japan, with the disposal of the remainder of the network expected in the present quarter. The facility in Essonnes, France will be part of a joint venture with Infineon Technologies (a Siemens subsidiary), with DRAM production being changed to logic chips, and $770 million of charges for restructuring moves, including some in its storage business ($208 million of charges there). Toshiba will take over IBM's 50 per cent interest in the Dominion Semiconductor Company from the end of December next year, resulting in a charge of $104 million. IBM is taking full ownership of the MiCRUS joint venture with Cirrus, where CMOS components are produced, giving rise to a charge of $92 million. Curiously, IBM decided to implement an accounting change to depreciate its internal PCs in three years instead of five years, the same day that Microsoft announced it would use three years for Windows depreciation calculations rather than two years, so it looks like three years is now official for PC life. Hardware revenue of $9.379 billion for the quarter was up 22 per cent over the year-earlier quarter. AS/400 revenue is beginning to fall, but RS/6000 and S/390 both showed increased revenue. The PC business "continued its year-over-year improvement" Lou Gerstner said, but he did not give a figure. OEM revenue was $1.9 billion, up 21 per cent over the previous year. Services showed 15 per cent growth compared with a year ago, while software was up 9 per cent, financing up 4 per cent, and investments up 16 per cent. Geographically, the Americas rose 16 per cent to $10 billion, with EMEA up 14 per cent to $6.4 billion and Asia-Pacific up 19 per cent to $3.6 billion. IBM declines to speculate about future results because of the complexity of its business. It is also interesting to see the difference in style between how IBM announces its results, led from the front by Gerstner, and how Microsoft puts in to bat two medium level executives and the CFO, who just a quarter ago was considering leaving the company. Perhaps Gates and Ballmer are on holiday. ®

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