Fitter IBM drives profit higher in Q1

Free of PCs and workers

By Ashlee Vance, 18th April 2006

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IBM's no frills agenda paid off in the first quarter as the giant posted a larger profit despite flat revenue.

In the past year, IBM cleaved almost 15,000 workers from its payroll. In addition, it sold off a low-margin PC business, having already disposed of a low-margin hard disk drive unit. This seems to be helping out the bottom line.

IBM, for example, reported a profit $1.7bn during the first quarter, which compares to $1.4bn in the same period last year. That's a more than tidy 21 per cent gain.

Meanwhile, total revenue dropped from $22.9b to $20.7bn, including results from the old PC unit. Without the PC baggage, IBM's revenue came in flat year-over-year.

"Our performance underscores the strength of our business model across a balanced portfolio of software, services and hardware, and demonstrates the benefits of the strategic actions we've taken in recent years to reposition the company," said CEO Sam Palmisano.

As ever, IBM's financial statement for the first quarter proved an adventure.

The company tried to put results in the best possible light by excluding both the PC unit effects and currency effects from core figures. That leaves sales up by low single-digitis in the Americas, EMEA and Asia-Pacific regions.

Looking at individual units, investors saw that IBM's Global Services group posted a 1 per cent decline in revenue to $11.6bn.

The server and storage group reported a 3 per cent revenue boost to $4.4bn on the back of strong processor, storage and x86 server sales. Unix server, iSeries and mainframe sales declined.

IBM's software business posted a 2 per cent revenue rise to $3.9bn with WebSphere and DB2 boosting the results.

All in all, IBM delivered a mixed bag, which has become a common theme for the company around earnings time. The beast can always point to one or two units as success stories while the rest of the units hover in the very low single digit growth or single digit loss areas.

IBM did not provide a second quarter forecast.

Investors pushed IBM shares slightly higher in after-hours trading to $84.35, at the time of this report.®

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