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IBM's second-quarter revenue rises 16 percent

Big Blue says revenue climbs 16 percent in the quarter as many of its strategic initiatives are finding acceptance in the marketplace.

IBM announced second-quarter earnings hit 91 cents per share, above the estimated 88 cents a share projected by a consensus of Wall Street analysts.

The 91 cents earnings per share compares with the 75 cents reported in the second quarter of last year. Second-quarter revenues grew 16 percent to $21.9 billion from $18.82 billion a year ago. Net income grew to $2.39 billion, compared with $1.5 billion in the second quarter of 1998.

High estimates on Wall Street for revenue growth was 15 percent. Some analysts were predicting 12 percent revenue growth.

IBM's solid growth comes at a time when a number of the company's strategic initiatives are finding acceptance in the marketplace. The company's software business and emphasis on e-commerce has seemingly begun to pay off and distinguish IBM as one of the leading software and hardware providers for this segment.

"Our services business continued to show excellent results in the quarter. Our software unit once again turned in a very good performance, with particularly strong results from our database, transaction processing, and Tivoli products," said chief executive Lou Gerstner, in a statement.

IBM said it signed $9.5 billion in services contracts in the quarter and concluded the quarter with a total services contract backlog of approximately $55.2 billion.

IBM made it clear today that it will start to pull out of the DRAM memory chip business, as reported earlier. "We are well down the path of exiting the high-volume manufacturing of DRAM [memory] chips, while shifting our resources toward the faster-growth, higher-margin custom chip area," Gerstner said.

This includes system-on-a-chip development, which packs most of the core electronics of a computer onto a single chip. "IBM's facility in Essonnes, France, will convert to custom logic manufacturing over an 18-month period through a joint venture established in the second quarter with Infineon Technologies, a subsidiary of Siemens," the company said in a statement.

IBM wrote off its investment in Dominion Semiconductor Company, resulting in an after-tax charge of approximately $104 million, or $.05 per diluted common share. The take over, by Toshiba, of IBM's 50 percent interest in Dominion, a DRAM manufacturing operation, is effective December 31, 2000.

IBM also said revenues from its AS/400 business computers declined. This is a segment that had done well previously.

"In addition, we are taking various steps to integrate development and manufacturing activities in our hard disk drive business while reducing expenses," Gerstner said.

IBM's computer business showed some improvement. There was good growth for System/390 servers and a "marked improvement" in the quarter in RS/6000 Unix business computers. The PC business also showed year-over-year improvement.

Though the pre-tax income margin in Personal Systems--which is comprised of its personal computer division--was off 3.9 percent to $3.88 billion, this is an improvement over the $2.58 billion reported last year in the second quarter, when it was off 16.9 percent.

Second-quarter revenues from the Americas totaled $10 billion, an increase of 16 percent compared with the same period of last year. Revenues from Europe/Middle East/Africa were $6.4 billion, up 14 percent. Asia-Pacific revenues grew 19 percent to $3.6 billion. OEM revenues totaled $1.9 billion, a 21 percent increase compared with the second quarter of 1998.

Hardware revenues were $9.4 billion in the second quarter, an increase of 22 percent compared with last year's second quarter. Personal computer, RS/6000 and System/390 server revenues increased. Overall storage and microelectronics revenues also grew in the quarter.

IBM chief financial officer Doug Maine said Big Blue was making no change in the generally upbeat financial picture for the rest the year, although he said that IBM faced difficult year-to-year financial comparisons in the third quarter.

In a conference call with analysts, Maine said the company was seeing no new evidence of a coming slowdown in spending on new computers as customers rush to fix the Year 2000 problem.