AS/400 Revenues Down; IBM Profits Rise

Despite a decline in AS/400 revenues for the first time all year, IBM recorded record fourth-quarter 1998 diluted earnings per common share of $2.47 on revenues of $25.1 billion and net income of $2.3 billion.

The record revenue total was an increase of 6 percent over the fourth quarter of 1997, but still fell short of Wall Street estimates, due in large part to dropoffs in Asia/Pacific and Latin America revenues.

"We're pleased with the overall performance of our portfolio of products and services and by our 10 percent growth in pretax income," says Douglas Maine, IBM senior VP and CFO. "Our revenue grew 6 percent, reflecting both the continued changing mix of our business from hardware toward services and software and the weakness in Asia along with further deterioration in Latin America."

Hardware revenues fell 2 percent to $11.3 billion as revenues declined for AS/400, RS/6000 and S/390. System/390 computing power shipments did increase by 60 percent however [as measured in MIPS] with the revenue decline attributed to price reductions. Storage and personal computer revenues increased.

"AS/400 customers were anticipating an important new product announcement later this quarter so demand slowed in the face of that," says Maine. "A fact of life these days is that product introductions happen and they happen at a faster pace than they have before. We have a new version of our [System]/390 coming next year, the G6. We have a very important new version in February of the AS/400, which we think will be a big hit. Our RS/6000, the benchmarks, particularly at the high end, are better than our competitors. That should serve us well. It's up to execution."

Services revenues continued to be the star performer in IBM's portfolio, jumping 20 percent -- by more than $1 billion -- to $7.1 billion. Software revenues were up 9 percent to $4.1 billion, with database, transaction processing and Tivoli systems management products doing especially well. IBM also added more than 5 million Lotus Notes seats in the quarter, for a total of 34 million by year's end.

For the entire year, net income was up 3 percent to $6.3 billion, revenue was up 4 percent to a record $81.7 billion. Hardware revenues for 1998 fell 4 percent to $34.7 billion.

--D. Callaghan

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