IBM sales increase to $21.4bn
The year-ago profit was squeezed by costs for cutting jobs and shedding a disc-drive unit. Analysts estimate that revenue rose in software and services.
Computer hardware revenue fell about 2% as companies continue to defer purchases, according to Lehman Brothers Inc analyst Daniel Niles.
Shares of IBM, which have gained 11% this year, dropped eight cents to $86.36 in New York Stock Exchange composite trading. They fell 36% last year. Under former chief executive Louis Gerstner in 1999, IBM stopped making business applications, software that runs tasks such as accounting, customer service, inventory and payroll. Palmisano took over from Gerstner as CEO last year and has expanded the programme. IBM now gets about 30% of its software revenue from partnerships with more than 100 applications makers, according to Buell Duncan, who oversees the deals at IBM. He declined to specify the breakdown in revenue sharing.
Palmisano also has deepened alliances with partners such as Siebel Systems Inc. The software companies recommend clients buy IBM gear and use IBM to install and tailor the systems. Revenue from IBM’s largest software partnerships, among them SAP and PeopleSoft Inc, rose 20% in the first quarter and more than 80% from 2000 to 2002, IBM has said.
Palmisano, who headed IBM’s services and hardware businesses before becoming president in 2000, declined an interview request.
Last year, he was paid $6.99 million in salary, bonus, stock and other compensation, and got 300,000 stock options, according to IBM’s proxy statement.
While IBM has abandoned some business programs, IBM is expanding sales of database software as well as tools that create new programmes. IBM’s push into these areas had made software a $13 billion a year business, second only to Microsoft Corp.
IBM also is backing the use of the free Linux operating system as an alternative to Microsoft’s Windows.
Analysts estimate second-quarter software sales gained about 10%, helped by the February $2.1 billion acquisition of Rational Software Corp, a maker of tools used by software developers, analysts estimate. Revenue grew 4% excluding Rational, Soundview Technology Group analyst John Jones said.
Last month, IBM acquired closely held Think Dynamics Inc, a maker of programmes that run computers on and off as needed. IBM last year became the top seller of “relational database” programmes that store and sift data such as airline reservations and financial transactions, passing Oracle for the first time.
The software partnerships are more important because of last year’s $3.5 billion acquisition of PricewaterhouseCoopers LLP’s business-consulting unit, investors said. Services revenue probably rose 21%, helped by the PricewaterhouseCoopers buy, analysts said.
“They want to have a consulting firm that can be independent,’ said Ryan Davies, an analyst with US Bancorp, which manages $113 billion and owns shares of IBM and Oracle.
