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PC sales part of big IBM quarter

Stronger sales of Thinkpad portables and Aptiva home PCs play a big part in Big Blue's profitable third quarter.

Stronger sales of its Thinkpad portables and Aptiva home computers were a big part of IBM's profitable third quarter.

During an earnings briefing, IBM executives urged financial analysts to be cautious. Strong performance in PC sales is "gratifying, but not yet a pattern," one IBM executive said.

But sales trends for both notebooks and consumer machines will likely continue in the important end-of-the-year retail season, in part because of new "I series" ThinkPads in the consumer sector, said Gary Helmig of Soundview Technical Group.

Thinkpad sales got a boost from the slimline ThinkPad 600 model that was released earlier this year, IBM executives said today. In addition, and perhaps more surprisingly, the Aptiva line "did very well."

The turnaround is significant in light of the ups and downs the Aptiva line has experienced over the past two years. IBM's home PCs have been unstable for more than a year because of Big Blue's belated jump onto the low-cost systems bandwagon, flip-flops in marketing strategy, and the loss of some key sales accounts, said Kevin Hause of International Data Corporation. For example, Radio Shack switched from selling Aptivas to selling Compaq models, he said.

The marketing flip-flops have left consumers confused about what exactly an Aptiva computer is, despite IBM's efforts to nail that image down in 1998, Hause said. Is the Aptiva a premium home PC? A value machine? The best educational system for families? "It's really been hard to pin them down," he noted.

In their financial performance announcement, however, IBM said it took away some of its competitors' market share in the overall PC market. Sales to end users grew at three times the industry rate, and sales into the distribution channel grew at 2.5 times the industry rate.

"That's certainly significant growth," Hause noted.

But some of those computers shipped to end users were coming out of an overloaded distribution channel. IBM is still "taking down inventories" of PCs that already were shipped into the channel, Helmig said, so "revenue performance was not as good as I expected."

Although IBM increased its market share in PC sales, officials said it's more important to focus on profit, not market share or revenue. "Dell's margins are better than the rest of traditional PC companies. That's obviously not been lost on us," one IBM executive said.

Hause said that Dell has been running neck-in-neck with Compaq for market share of PCs in corporations, with both companies above 16 percent in the second quarter of 1998. Hewlett-Packard has occupied third place, with IBM close behind, at about 7 percent market share.

Trying to move up won't be easy, particularly because of IBM's size. Third-quarter market share figures are scheduled for public release Monday.

"It's not a simple migration to make," Hause said. "Making some of these changes means completely re-engineering much of your supply and distribution chains" and reworking manufacturing, deals with partners, and even sales salaries.

Additionally, Helmig said IBM "really needs to work on its Netfinity servers," mid-range servers based on Intel Pentium II and Pentium II Xeon chips.