IBM results expose PC weakness

Results Software and services boost figures as the personal systemsdivision turns in $89 million pre-tax loss.

IBM's first-quarter results released last week reflected the vendor's continuing inability to rely on the PC market for contribution to its coffers, as it sustained a pre-tax loss of almost $90 million from its personal systems group.

Although IBM made a net profit of $1.5 billion overall - up 42 per cent - in the period ended 31 March, the gains came mainly from software and services. The $89 million pre-tax loss for the personal systems group was down from a pre-tax loss of $458 million from the previous year.

IBM's hardware operations overall were boosted by servers, which generated a pre-tax profit of $498 million, down two per cent from 1998. Within servers, System/390 turnover increased while RS/6000 and AS/400 revenue fell. Technology brought in $70 million, down 71 per cent. Storage turnover rose, but microelectronics revenue fell.

Of all the divisions, hardware made the biggest contribution to the vendor's total turnover - 42.3 per cent or $8.6 billion - but the smallest in terms of pre-tax profit at $479 million. Total turnover was $20.3 billion, up 15 per cent from $17.6 billion last year.

Lou Gerstner, chief executive of IBM, still reeling from the fallout of his recent pronouncement that the PC era was over, talked up the contribution of software and services to IBM's performance, after the two divisions together brought in about 70 per cent of the vendor's pre-tax income.

However, one revelation of the results was that gross profit margins on global services, at 26.3 per cent, were even lower than the hardware division's margins of 27.2 per cent.

In a statement, Gerstner said: 'Our operating results were excellent, led by services and software. Our technology group results were mixed, with growth in hard disk drives offset by continued weakness in memory chips.'