IBM seeks refuge in services sector

Vendor posts poor first quarter profits, blaming Asia financial crisis and Olympic expenses. Wale Azeez reports.

IBM has joined the ranks of PC vendors that are continually sufferings and Olympic expenses. Wale Azeez reports. decline in earnings from weak hardware sales, after it posted first quarter earnings for the period to 31 March.

The giant's net profits were dragged down 13.3 per cent at $1.03 billion from $1.2 billion last time, by a faltering demand for hardware products.

Turnover was virtually flat at $17.6 billion, down from $17 billion in the same period last year. Gross profit margins fell from 38.1 per cent to 36.6 per cent.

Hardware revenue - the most seriously hit sector of the IBM stable - was down eight per cent at $7.1 billion, from $7.8 billion for the same period last year.

Gross profit margins on hardware slid to 28.3 per cent from 32.4 per cent. According to the company, AS/400 turnover increased but RS/6000 turnover was flat.

In a statement, IBM chief executive Lou Gerstner also blamed the decline on acquisition charges and marketing expenses from the Olympics.

He did not specify whether this referred to the Atlanta summer Olympics in 1996 or winter in Nagano this year.

Currency fluctuations and the ubiquitous Asian crisis were also cited as reasons for the lacklustre performance.

'At the same time, our PC business suffered from a severe price war that was greater than anticipated,' he added.

However, the slump that arose from poor hardware sales was tempered by a marked improvement in services, which the vendor has been pushing in recent months.

Revenue was up 22.3 per cent to $5 billion from $4.1 billion last time, indicating a rise in margins from 69 per cent to 74.5 per cent.