IBM: Services Business Weathers The Storm, Hardware Business Down

IBM

IBM Global Services (IGS) revenue declined 3 percent to $8.2 billion in the period ended March 31, but IBM CFO John Joyce said the company signed $15 billion in service contracts during the first quarter, bringing the IGS backlog to $108 billion. "This [services annuity stream gives us a higher safety net," he said.

But Joyce added in a conference call that "longer customer [buying decisions and aggressive pricing by competitors" contributed to the steep decline in hardware revenue for the period.

IBM last week reported first-quarter net income of $1.19 billion, or 68 cents per share, down 12 percent from $2.25 billion, or 98 cents per share, reported in first-quarter 2001. Revenue totaled $18.6 billion, down 12 percent from the $22.9 billion reported a year earlier.

Solution providers said, however, they are seeing an upswing in their IBM business. "Our IBM business is growing nice and steady," said John Sheaffer, president of Sysix Technologies, Westmont, Ill.

He said that he has some big IBM deals scheduled for this quarter in the education market. "We also intend to expand into the health-care vertical," he said.

By hardware segments, Joyce said zSeries mainframes were down 20 percent, iSeries was down 35 percent, xSeries was down 3 percent and storage revenue dropped 17 percent year over year.

Meanwhile, IBM's Personal and Printing Systems group posted a profit of $65 million after losing $58 million in first-quarter 2001. Sales for the group, however, declined 21 percent to $2.5 billion compared with revenue of $3.2 billion for the year-earlier period.

Joyce said that cost-cutting measures, such as outsourcing desktop PC manufacturing during the quarter to Sanmina-SCI, helped bolster profits.

But he added, "The percent of direct business did not meet our expectations."