04
Mon, Nov
1 New Articles

IBM Misses Revenue and Profit Targets

Analysis of News Events
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

On April 14, IBM released first quarter revenue and earnings figures that failed to meet analyst estimates and sent a shock wave through the financial markets. On Wall Street, many pundits openly wondered whether corporate IT spending is on the decline. What those pundits did not notice is that IT spending still looks healthy among small and medium-size companies in general and iSeries customers in particular.

The worries began to mount when IBM announced that it had realized earnings of $1.41 billion--or 85 cents a share--on revenues of $22.9 billion during its first quarter. This fell significantly short of analyst estimates for earnings of 90 cents a share on revenue estimates that ranged from $23.2 billion to $23.8 billion. Including the effect of favorable currency changes, IBM's revenue and profits both grew by only 3% over the first quarter of 2004.

One thing that frightened Wall Street was the way in which IBM fell short of its estimates. During January and February, growth in orders and revenues was fairly strong. In the second half of March, however, the computer giant hit a brick wall in its efforts to close sales opportunities. Admittedly, much of the slowdown emanated from four countries--France, Germany, Italy, and Japan--that jointly account for 25% of IBM's revenues. However, the news led many industry observers to speculate whether these countries are early indicators of a broader slowdown in worldwide IT spending.

Are corporations about to put a worldwide lid on IT spending? My answer is a qualified "no" because growth persists in other parts of the market. As IBM readily pointed out, for instance, revenues from China, Russia, India, and Brazil grew 18% during the first quarter to $1 billion. In addition, orders from Eastern Europe and the Americas held steady. As such, it is likely that the slowdowns in Western Europe and Japan are more a reflection of problems that are unique to these regions. One of those problems is a planned restructuring by IBM of its European operations that could involve layoffs and office closings. As IBM admitted to Wall Street analysts, preparations for the restructuring had a disruptive effect on efforts to close European sales at the end of the first quarter.

Just as importantly, orders from small and medium-size businesses as well as iSeries customers remained strong throughout the quarter. On a worldwide basis, IBM's sales to the SMB market grew by 7% during the first quarter, making it the fastest growing industry segment for the company. The company also reported a more modest growth rate of 1% for the iSeries. However, sources within IBM are telling me that revenues actually grew 3% when orders for iSeries-specific software are included. The same sources claim that seven IBM sales regions experienced double-digit growth in iSeries revenues during the first quarter. This is encouraging news for the iSeries Division, which has set a goal of achieving double-digit growth for worldwide sales in 2005.

As these figures indicate, it does not appear that companies in most countries--or SMB firms for that matter--are slamming on the IT spending brakes. However, there is still a chance that IBM and other IT vendors will hit a few bumps in the sales road over the next several quarters. Studies by market research firms indicate that while spending on PCs will not decline, the rate of spending growth will shrink in 2005. This is to be expected now that most companies have made the transition to Windows XP workstations and Microsoft's Longhorn version of Windows is well over a year away. In addition, mainframe spending may stagnate for a few quarters because many companies upgraded their host systems last year. Indeed, sales of IBM's mainframe zSeries fell by 16% during the first quarter after experiencing a stellar 2004.

Because sales of PCs and mainframes stimulate sales of software and services, some IT vendors may find it harder to close sales in these two areas as well. Indeed, IBM experienced problems closing new short-term service contracts during the quarter. However, the company experienced rapid growth in demand for Business Process Transformation Services. This is a critical area for IBM, as it is a spearhead for the company's drive to be the leader in helping companies become On Demand businesses.

In short, IBM and other vendors may hit soft patches in IT spending for some products and services in some countries over the next few quarters. Overall, however, sales in most areas should hold steady, leading to solid if not spectacular growth. Much of that growth will come from developing economies and from SMB firms. These are market segments where the iSeries has opportunities to shine. As such, I expect that any moderation in spending growth will have a minor effect on IBM's premier midrange platform. This means that while the iSeries Division's goal of double-digit revenue growth for 2005 will be tough to achieve, it is still within reach.

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..

LEE KROON
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology.
BLOG COMMENTS POWERED BY DISQUS

LATEST COMMENTS

Support MC Press Online

$

Book Reviews

Resource Center

  • SB Profound WC 5536 Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application. You can find Part 1 here. In Part 2 of our free Node.js Webinar Series, Brian May teaches you the different tooling options available for writing code, debugging, and using Git for version control. Brian will briefly discuss the different tools available, and demonstrate his preferred setup for Node development on IBM i or any platform. Attend this webinar to learn:

  • SB Profound WP 5539More than ever, there is a demand for IT to deliver innovation. Your IBM i has been an essential part of your business operations for years. However, your organization may struggle to maintain the current system and implement new projects. The thousands of customers we've worked with and surveyed state that expectations regarding the digital footprint and vision of the company are not aligned with the current IT environment.

  • SB HelpSystems ROBOT Generic IBM announced the E1080 servers using the latest Power10 processor in September 2021. The most powerful processor from IBM to date, Power10 is designed to handle the demands of doing business in today’s high-tech atmosphere, including running cloud applications, supporting big data, and managing AI workloads. But what does Power10 mean for your data center? In this recorded webinar, IBMers Dan Sundt and Dylan Boday join IBM Power Champion Tom Huntington for a discussion on why Power10 technology is the right strategic investment if you run IBM i, AIX, or Linux. In this action-packed hour, Tom will share trends from the IBM i and AIX user communities while Dan and Dylan dive into the tech specs for key hardware, including:

  • Magic MarkTRY the one package that solves all your document design and printing challenges on all your platforms. Produce bar code labels, electronic forms, ad hoc reports, and RFID tags – without programming! MarkMagic is the only document design and print solution that combines report writing, WYSIWYG label and forms design, and conditional printing in one integrated product. Make sure your data survives when catastrophe hits. Request your trial now!  Request Now.

  • SB HelpSystems ROBOT GenericForms of ransomware has been around for over 30 years, and with more and more organizations suffering attacks each year, it continues to endure. What has made ransomware such a durable threat and what is the best way to combat it? In order to prevent ransomware, organizations must first understand how it works.

  • SB HelpSystems ROBOT GenericIT security is a top priority for businesses around the world, but most IBM i pros don’t know where to begin—and most cybersecurity experts don’t know IBM i. In this session, Robin Tatam explores the business impact of lax IBM i security, the top vulnerabilities putting IBM i at risk, and the steps you can take to protect your organization. If you’re looking to avoid unexpected downtime or corrupted data, you don’t want to miss this session.

  • SB HelpSystems ROBOT GenericCan you trust all of your users all of the time? A typical end user receives 16 malicious emails each month, but only 17 percent of these phishing campaigns are reported to IT. Once an attack is underway, most organizations won’t discover the breach until six months later. A staggering amount of damage can occur in that time. Despite these risks, 93 percent of organizations are leaving their IBM i systems vulnerable to cybercrime. In this on-demand webinar, IBM i security experts Robin Tatam and Sandi Moore will reveal:

  • FORTRA Disaster protection is vital to every business. Yet, it often consists of patched together procedures that are prone to error. From automatic backups to data encryption to media management, Robot automates the routine (yet often complex) tasks of iSeries backup and recovery, saving you time and money and making the process safer and more reliable. Automate your backups with the Robot Backup and Recovery Solution. Key features include:

  • FORTRAManaging messages on your IBM i can be more than a full-time job if you have to do it manually. Messages need a response and resources must be monitored—often over multiple systems and across platforms. How can you be sure you won’t miss important system events? Automate your message center with the Robot Message Management Solution. Key features include:

  • FORTRAThe thought of printing, distributing, and storing iSeries reports manually may reduce you to tears. Paper and labor costs associated with report generation can spiral out of control. Mountains of paper threaten to swamp your files. Robot automates report bursting, distribution, bundling, and archiving, and offers secure, selective online report viewing. Manage your reports with the Robot Report Management Solution. Key features include:

  • FORTRAFor over 30 years, Robot has been a leader in systems management for IBM i. With batch job creation and scheduling at its core, the Robot Job Scheduling Solution reduces the opportunity for human error and helps you maintain service levels, automating even the biggest, most complex runbooks. Manage your job schedule with the Robot Job Scheduling Solution. Key features include:

  • LANSA Business users want new applications now. Market and regulatory pressures require faster application updates and delivery into production. Your IBM i developers may be approaching retirement, and you see no sure way to fill their positions with experienced developers. In addition, you may be caught between maintaining your existing applications and the uncertainty of moving to something new.

  • LANSAWhen it comes to creating your business applications, there are hundreds of coding platforms and programming languages to choose from. These options range from very complex traditional programming languages to Low-Code platforms where sometimes no traditional coding experience is needed. Download our whitepaper, The Power of Writing Code in a Low-Code Solution, and:

  • LANSASupply Chain is becoming increasingly complex and unpredictable. From raw materials for manufacturing to food supply chains, the journey from source to production to delivery to consumers is marred with inefficiencies, manual processes, shortages, recalls, counterfeits, and scandals. In this webinar, we discuss how:

  • The MC Resource Centers bring you the widest selection of white papers, trial software, and on-demand webcasts for you to choose from. >> Review the list of White Papers, Trial Software or On-Demand Webcast at the MC Press Resource Center. >> Add the items to yru Cart and complet he checkout process and submit

  • Profound Logic Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application.

  • SB Profound WC 5536Join us for this hour-long webcast that will explore:

  • Fortra IT managers hoping to find new IBM i talent are discovering that the pool of experienced RPG programmers and operators or administrators with intimate knowledge of the operating system and the applications that run on it is small. This begs the question: How will you manage the platform that supports such a big part of your business? This guide offers strategies and software suggestions to help you plan IT staffing and resources and smooth the transition after your AS/400 talent retires. Read on to learn: