Big Blue, which reported first quarter net income of $1.5 billion earlier this week, seems to be enjoying something of a renaissance with investors, and the change in attitude seems grounded in the growth IBM has posted in hardware.
The renewed faith is reflected in IBM's stock price, which closed up $5.25 to a record $199.75. Earlier in the day, it hit 206.5625.
For the past two years, IBM's PC division has struggled with uneven sales. Last year, the unit lost close to a $1 billion, a situation that prompted some analysts to predict that IBM might leave the PC market. Cost cutting and aggressive marketing, however, have sparked sales and given life to the concept of IBM as a PC maker.
"IBM's 50 percent PC revenue growth...[implies] unit growth of about 30 percent," Goldman Sachs stated in a report.
The key drivers in IBM's PC growth were NetFinity PC servers and ThinkPad portables, with revenue growth in PC servers of roughly 100 percent, the report added. "PC revenues were $3.6 billion vs. our assumption of $2.8 billion."
"[Though] investors called for IBM to exit the PC business and OEM products from another vendor...we...believed IBM's cost structure had improved significantly and, while it still had to prove itself, it had an opportunity to gain share during a time of some turmoil for the industry's largest participant, Compaq," the report added.
Goldman Sachs also cited improved competitiveness saying that Big Blue is moving PCs out of inventory at "twice the level it was at a year ago, and greater than Dell's [inventory] turns."
The report added that IBM was going head to head with Dell Computer for major corporate customers, a fact cited widely as evidence of IBM's determination to gain market share in PCs.
"On the profitability front, it is undeniable that IBM has made great strides in improving the profitability of the [PC] business," said analyst Thomas Kraemer of Morgan Stanley Dean Witter.
"In 1998, 67 percent of the $3 billion of revenue sold direct was PCs? Raising this ratio should improve profitability, and that will be a key IBM goal going forward," he added.
But business PCs isn't the only area IBM is going after. "IBM is mounting an aggressive assault upon Toshiba's historically strong position in the retail notebook segment with the "i" series of low-priced ThinkPads," said Matt Sargent, senior industry analyst at ZD Market Intelligence.
"The impact of IBM's move showed dramatically in February, when Toshiba US retail notebook sales declined dramatically from January, while IBM notebook sales accelerated," he said.
"IBM's share of notebooks in inventory has risen from 17 percent in December to 34 percent in February, while Toshiba has dropped from 40 percent in December to 25 percent in February. Toshiba's inventory levels have not been this low since June of 1997," Sargent said.
To put icing on the cake, IBM signed an agreement today to supply workstations and PCs to national investment firm A.G. Edwards.
IBM will deliver equipment and installation-management services to be used by the firm's financial consultants and support personnel. The agreement stipulates that IBM will supply desktop equipment and servers for the firm's nationwide system of 638 branches, IBM said today.