IBM Isn’t Too Worried About Oracle

IBM earnings

One of the most famous insults in the computer industry came in 1995. At the time, Steve Jobs had Next Computer, then minus its expensive hardware and selling a development environment. He was asked to comment on the merger of the two premier Smalltalk vendors, DigiTalk and ParcPlace.

Ever the diplomat, Jobs cracked that “two stones tied together sink twice as fast.” The line is remembered more for the humor of the putdown than its accuracy (though who uses Smalltalk any more?), and has remained a memorable one-liner from a Silicon Valley giant who’s got a million of them.

But on today’s conference call to discuss IBM’s first quarter earnings, CFO Mark Loughridge came real close. When asked during the Q&A session for his thoughts on the Oracle-Sun merger, he was just as dismissive as Jobs was 14 years ago.

“Oracle and Sun have been partnering for two decades. What’s the result? We picked up 14 points a share since 2000,” he replied. “What’s changed? Nothing. They now have the same address and the same mailbox, but we’re talking about the same team on the field we’ve been competing against for some time — and winning.”


Loughridge isn’t necessarily making the comments from a position of weakness, either. His poke at Oracle and Sun came as IBM — itself considered a suitor for Sun as little as a week ago — reported fairly healthy results considering the economic environment.

The company posted Q1 2009 revenues of $21.7 billion, falling short of estimates of $22.5 billion. Earnings per share the quarter totaled $1.70, beating Wall Street estimates by four cents, according to Reuters Estimates.

All of IBM’s segments were impacted by the currency exchange rate. In most instances, due to the weak dollar, that meant revenues were affected positively, since IBM has so much business overseas.

For example, revenue for the quarter was down 11 percent from the same quarter last year, or just 4 percent when adjusted for currency. Revenue from Europe/Middle East/Africa (EMEA) fell 18 percent, or just 3 percent when adjusted for currency.

The result was negatives turning positive in some places. Middleware products, like WebSphere, Tivoli, Lotus, and Rational, were down 5 percent, but still up 4 percent after adjusting for the weak dollar.

Loughridge said IBM is on track for full-year 2009 per-share earnings of at least $9.20 a share and “ahead of pace for our 2010 roadmap of $10 to $11 per share.” The company is doing that by an efficiency program — not unlike the path Intel (NASDAQ: INTC) took over the past three years — to improve its operating expenses.

He said IBM had improved its base spending by $1 billion in savings so far thanks to 2008 actions, and other steps total nearly $3 billion in savings, most of which are yet to be realized. “Our actions to achieve these savings are behind us, but the bulk of the benefits are in front of us,” he told the conference call.

While there was general market weakness, there were some bright spots. Growth markets account for 17 percent of IBM revenue and are growing. India revenues grew 12 percent this quarter, while China grew 11 percent. Loughridge said he expects revenue to return to growth overall by the second half of this year.

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