IBM Surpasses Analyst Expectations, but Revenues Take a Hit

Jim Martin

Despite sluggish sales, IBM still surpassed analyst expectations for its earnings report on the first quarter of 2000, earning $.83 a share, a six percent increase from the year-earlier period. A series of analysts surveyed by FirstCall/Thompson Financial had predicted earnings of $.78 per share.

First quarter net income was 1.52 billion, compared to 1.47 billion from the same quarter last year. Sales slumped five percent to $19.3 billion in the first quarter, as IBM blamed the lingering effects of the Y2K lockdown for much of the decrease. However, IBM was able to push profits higher by slashing costs six percent.

For the first time in five quarters, AS/400 revenue actually increased, rising five percent. IBM reported, however, that the AS/400 revenues grew mostly because of upgrades and not new sales, a bad sign for a server that continues to fight its “old-school” technology label.

Although AS/400 revenue grew, IBM’s overall hardware market did not, as revenue totaled $7.7 billion, a decrease of 12 percent. Leading the decline was a major decrease in hard disk drives. Software revenues totaled $2.9 billion, flat year over year. OEM revenue fell 19 percent to $1.4 billion. Global Financing revenues increased 16 percent to $816 million.

Looking ahead, IBM CFO John Joyce said that IBM was very optimistic that things will turn around very quickly. “For all practical purposes, Y2K is behind us,” he added. “Several of you have said you see IBM as a second-half story. Based on what we know at this time, we agree with this assessment.”

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