IBM Cites Mainframe Growth in Quarterly Report

Shipments up in terms of MIPS

• By Chris McConnell
• 07/18/2002

Posting a profit in the second quarter, IBM Corp. said in its quarterly statement yesterday that mainframe sales improved. Its diluted earnings per share hit three cents a share, after charges related to restructuring.

Overall, IBM’s net income for the second quarter was $56 million. Before charges, IBM’s income would be $2.1 billion, giving Big Blue a diluted profit of 84 cents per share. Overall revenue before charges was a little higher than the same quarter a year ago, but the diluted profit before charges is less than the $1.15 in the second quarter of 2001.

IBM sold a number of divisions and assets in the second quarter, leading to a complex statement of earnings and income. In particular, the creation of a joint partnership that effectively gives IBM’s hard drive business to Hitachi caused IBM to break revenues down into continuing and non-continuing businesses. Revenues from the hard drive group were booked in the non-continuing group since the joint venture will receive those revenues going forward.

The joint venture, along with the restructuring of the microelectronics group, was responsible for most of the $1.4 billion in charges IBM reported. Both the hard drive business and the microelectronics group were money-losers for IBM in the second quarter.

In its announcement, IBM noted its shipments of zSeries mainframes grew 4 percent year-over-year, measured in terms of MIPS. Sales of high-end hardware are generally measured in terms of revenue; presumably, low-cost products like the z800 mainframe made up much of the growth, leading IBM to choose MIPS – rather than revenue - as its metric.

In contrast, revenue from IBM’s other server lines, which include Unix and Intel-based machines, declined overall. Other than the zSeries, the Intel-based xSeries was the only other line to grow.

Enterprise software was another bright spot in IBM’s earnings report. Middleware grew 10 percent in the quarter, normalized for inflation. IBM counts its WebSphere line and DB2 database server among its middleware products. WebSphere grew 17 percent year-over-year and DB2 grew 11 percent. IBM attributes much of the DB2 growth to its acquisition of Informix last year.

While IBM may have had a slump last quarter, some other major players could only hope for a quarter like IBM’s. CRM leader Siebel saw a 61 percent drop in profits in the second quarter and announced it was laying off 1,100 workers. Chipmaker AMD lost a staggering 54 cents per share; competitor Intel missed earnings targets and announced it would lay off 4,000 employees.