Although IBM didn't grow much in 2000, CEO Lou Gerstner told investors in the company's annual report that IBM's services division could
help Big Blue recover ground in 2001.
Services will continue to play an increasingly important role at IBM,
Gerstner wrote in the report released Tuesday. In 2000, IBM's revenue and
earnings remained relatively static. Hardware even declined as a percentage
of revenue. But that means services managed to grow in a tough environment.
"I experience this time with a mixture of satisfaction, confidence and
hope," the CEO wrote in his letter to shareholders, published with the
annual report. "Satisfaction at IBM having stuck to its guns and gotten things pretty much right. Confidence in our ability going forward to deliver
on our promise and to deliver on our customers' needs. And hope about the genuinely transformative future that is opening up before all of us--businesses, schools, governments, entire societies."
Meanwhile, Gerstner's annual salary plus bonuses topped $10 million in 2000,
according to the report.
Gerstner received $2 million in salary and $8 million in cash bonuses,
according to the proxy statement included with the report.
The CEO received, among other benefits, about $3.5 million in payouts from
IBM's Long Term Incentive Program, which awards stock options to senior
management based on the company's financial performance over a multiyear period.
Gerstner received the same base salary with a bonus of $7.2 million in 1999. Sam Palmisano, IBM's president and COO, received $797,917 in salary
and $1.25 million in cash bonuses in 2000, the report said.
IBM recorded $88.4 billion in
revenue in 2000 with an after-tax profit of $8.1 billion. In comparison,
the company's 1999 revenue was $87.5 billion with a profit of a $7.7 billion.
Despite the numbers, IBM's traditional products--PCs and large servers--grew
only very slightly or fell.
IBM's Personal Systems group, responsible for PCs, notebooks and Intel-based
servers, saw revenue grow only 0.8 percent in 2000, compared with a 20
percent year-over-year jump in 1999, the annual report said.
IBM xSeries servers and ThinkPad notebooks saw much larger sales increases,
but those were offset by desktop PCs, where revenues were down in part because of IBM's exit from the retail market in the United States and Europe.
Personal Systems returned to profitability in the second half of 2000 after
losing more than $1 billion in the PC business in 1999.
Revenue from the Enterprise Systems group declined 1.4 percent from 1999, a much smaller loss compared with the 16.9 percent dip in annual revenue in 1999. Here, IBM's pSeries UNIX servers saw strong sales but were offset by
iSeries and zSeries servers.
Overall, IBM's hardware businesses accounted for $37.8 billion in revenue in 2000 vs. $37.9 billion in 1999.
Hardware accounted for 42.7 percent of total revenue in 2000, down from 43.3 percent in 1999 and 44.2 percent in 1998.
Global Services, on the other hand, accounted for $33.2 billion in revenue in 2000. Services revenue was up a hair from $32.1 billion in 1999. Services
as a percentage increased to 37.5 percent in 2000 from 36.7 in 1999, the report said.
Despite bringing the Personal Systems group back to profitability, IBM
continues to move toward being more of a services company. Gerstner called
services IBM's "trump card" in his letter to shareholders.
"Whether or not there is a softening of the U.S. economy, IBM should be in
reasonably good competitive shape," he wrote. "Of course, we all hope such a
downturn doesn't occur. But if it does, the ebbing tide may not beach all boats.
"For one thing, service offerings like outsourcing and hosting are
cost-saving propositions for our customers. Services, in this regard, is a
counter-cyclical business. And in a tightening economic environment,
customers are going to invest in projects that deliver rock-solid, tangible,
near-term payoffs, not in speculative, exploratory schemes. As a result,
this may be a prime opportunity for IBM to improve its market position."
Gerstner also highlighted a number of other areas as key to IBM's future.
They included IBM Microelectronics Division, which supplies processors to
IBM products as well as the communications industry.