Hardware Helps Lift IBM’s Q1 Profit

Strong hardware sales and favorable currency exchanges helped boost tech bellwether IBM’s profits by about 16 percent during the first quarter of 2004, to $1.6
billion (93 cents per share).

During the same time last year, IBM’s profit was $1.4 billion (79 cents per share). EPS rose by 18 percent.

The results, which met expectations, showed signs that the technology recovery continues its steady pace, and that hardware purchases are helping to lead the way in some

Revenues rose to $22.3 billion for the period, up by nearly 11 percent
from the same quarter last year. Favorable currency rates helped, but so did
very strong results in IBM’s zSeries server lines, as well as its sales of blade servers within its xSeries line.

Overall hardware sales rose to $6.7 billion, up by 16 percent (10
percent, adjusting for exchange rates). IBM’s zSeries sales rose by 34 percent, at a time when Big Blue marked the 40th anniversary of its system 360 mainframe. IBM also said it saw solid demand for its high-end zSeries mainframe, as well as for new applications and workloads for servers.

During a conference call to discuss the results, IBM chief
financial officer John Joyce said pricing on the company’s zSeries family had been “fairly aggressive,” and customers had responded. In addition, its range of Linux support on its zSeries lines, as well as its T-Rex mainframe (z990) and mid-range systems for smaller businesses, saw solid uptake.

Other clear winners were IBM’s xSeries Intel-based servers, and its pSeries servers for UNIX operating systems. Joyce said IBM’s new p690 series is also positioned to compete with Sun’s SPARC and HP’s RISC systems. However, revenues for iSeries midrange servers declined, as did Microelectronics revenues.

The company said strong sales of its ThinkPad x40 laptop, especially in emerging markets, drove personal systems sales to $2.8 billion, an increase of 18 percent over the first quarter of 2003.

Global services, which accounts for about half of IBM’s revenues, notched $11.1 billion in revenue, up 9 percent thanks to exchange rates. The company signed services contracts totaling over $10 billion and said it ended the quarter with an estimated services backlog of $120 billion for work that includes strategic outsourcing, business consulting services, Integrated technology services and maintenance. Strategic outsourcing was the best performing sub-sector in the services division with a 16 percent rise in sales.

Software sales were up by 11 percent (3 percent at constant currency) to $3.5 billion, led in large part by IBM’s Rational tools division, which saw sales jump by 88 percent as a result of IBM’s acquisition of the software testing company.

IBM’s WebSphere family of middleware saw a 24 percent increase in sales. Revenues from IBM’s other middleware brands, including DB2 Tivoli and Lotus products, increased 13 percent, to $2.7 billion.

Reflecting the high demand for storage management software — especially as companies come into compliance with new federal record-keeping rules — IBM’s Tivoli storage software sales were up by 31 percent, Joyce said.

In a statement, Samuel Palmisano, IBM’s chairman and chief executive officer, said the company delivered a solid first quarter.

“Behind the results, clients are increasingly turning to IBM to help them become on demand businesses,” he said.

In addition, Joyce noted that IBM is looking for continued growth in hardware systems, especially as enterprise customers look at the
depreciation rates on their hardware systems after delaying upgrades for a few years.

“Infrastructures are just getting old and they need to upgrade them,” he
said. “We’re seeing that.”

News Around the Web