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As expected, IBM reports flat Q2 income

As expected, IBM reports flat Q2 income

IBM officials expected flat second-quarter growth and that's exactly what the company reported last week, with $US1.9 billion in net income compared to $2.4 billion a year ago. Second-quarter revenue dropped 1 per cent to $21.7 billion compared to 12 months ago.

Pulled down by sluggish PC sales, hardware revenue dropped 5 per cent for the quarter to $9.2 billion. PC sales dropped $140 million compared to the year-ago quarter. New, less expensive products should spur sales in coming quarters, and problems obtaining components from a manufacturer also are being addressed, Joyce said.

Server revenue derived from sales of new high-end and mid-range models was up, though System/390 and AS/400 revenue dropped, mostly because of price reductions and a product transition, respectively.

Software revenue rose 2 per cent to $3.2 billion with strong growth in middleware products used by companies doing business on the Internet. Along those lines, Web management software, consulting services offered to companies that do business on the Internet and Web hosting all had a strong quarter, as did wireless chips and systems integration.

On the home front

IBM Australia was tight-lipped about its performance, however, the results come after IBM quietly released its Value-Based Compensation program in Australia at the beginning of this month.

Applicable to software only, the new margin structure divides earnings across a number of different points of contact that lead to a sale, rather than focussing on fulfilment.

The conscious move by IBM to reward resellers for value-add services capability while de-emphasising product fulfilment has been met with mixed reactions from the channel. While IBM is promoting value-based compensation as channel friendly, the new margin structure has seen fulfilment compensation fall dramatically, and has come as a shock to some resellers.

"Traditionally the reseller margin should be significant enough to compensate the reseller for training pre-sales resources, motivate sales and marketing efforts and leave a profit," said one reseller in contact with ARN. "A 10 per cent margin provides little incentive to move our sales team from a vendor neutral position to actively supporting IBM products."Conversely Mike Shove, vice president, product business at Computer Sciences Corporation, said: "It's going well. We do a lot of services, so it's really an extension of what we are already doing."Although Shove is optimistic about the program, he recognises the issues it confronts for resellers. "There's no long-term future in selling the box - you have to wrap services around it. I think there is a mixed reaction in the channel [to value-based compensation], depending on how experienced their services are. Some resellers are doing it tough in making the transition to a services business," Shove said.

The way forward

IBM expects a stronger second half to come on the heels of renewed IT spending by companies that do business on the Internet.

But IBM had to wade through the flat second quarter first. The company's bottom line was affected by fallout from the year 2000 computer problem, which led customers to delay IT spending, officials said.

Net income for the six months ending June 30 was $3.5 billion or $1.89 a diluted common share compared to $3.9 billion and $2.05 per diluted share for the first half of fiscal 1999. If the after tax net benefit from the sale of Global Network and other 1999 actions are excluded, the figures from last year drop to $3.2 billion or $1.69 per diluted share. Excluding the after-tax net benefit of $687 million from the gain on that sale and other actions, the company had net income of $1.7 billion for the year-ago quarter.

Regionally, Asia-Pacific showed the strongest growth, up 20 per cent from the year-ago quarter to $4.3 billion. Revenue for the second quarter in the Americas was $9.7 billion, down 3 per cent from a year ago. Revenue from Europe, the Middle East and Africa was down 9 per cent, to $5.9 billion. OEM (original equipment manufacturer) revenue was down 6 per cent to $1.8 billion in the year-ago quarter.

IBM Australia was unwilling to comment for this article.


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