Sidebar

IBM: Surf's Up! Tide's Out

Commentary
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Last week, on April 14, 2003, IBM announced its first-quarter results, demonstrating impressive resilience during a period of economic uncertainty. Yet the story behind these numbers tells a tale of continued trepidation in the purchase of IT goods within the marketplace.

IBM says that its diluted earnings per common share increased by 8%, from $.73 per share a year ago to $.79 per share in the first quarter. First-quarter income from continuing operations was $1.4 billion, compared to $1.3 billion last year. Overall revenues grew by 11% to $20.1 billion, compared to $18.0 billion in 2002.

Global Services Stars, DB2 Is Hot, and WebSphere Rules!

Within IBM, Global Services pulled $12 billion in signings. At the same time, IBM Software gained market share, according to IBM, in the areas of database with DB2 and Web application servers with WebSphere.

Meanwhile, according to IBM, the eServer division showed signs of strong growth, led by xSeries. Even pSeries and iSeries showed gains in an otherwise dull hardware marketplace.

All told, it is an impressive first quarter for 2003, especially considering the world's concern about the manufacturing economy, war, and international unrest. But what is particularly interesting is where and how these gains in this quarter were derived by IBM.

The Geographic Growth Curve--Advance Through Weakness

IBM divides its market into three global geographic regions: The Americas (North and South); Europe, the Middle East, and Africa (EMEA); and Asia-Pacific. By understanding how IBM is serving these market areas, we can begin to see how the current global economy is being reflected in its numbers.

IBM says that the greatest percentage of growth in continuing operations occurred in EMEA, up 23% over last year to $6.3 billion. This was followed by Asia-Pacific revenues, which grew at 14% with revenues of $4.5 billion. By comparison, the Americas grew only by 5% to $8.6 billion.

However, much of this growth in percentage appears to have been a result of the weakening exchange rate of the dollar. For instance, the 23% gain IBM notes for EMEA was really only a 3% gain in constant currency. Likewise, Asia-Pacific's percentage gains were only 5% at constant currency. By comparison, the growth in the Americas was actually better than the 5% in constant currency, up by 7% in real dollars.

Hardware Hits Bumps in the Road

One might expect, then, that with a weakening U.S. dollar, the cost of IBM equipment would fall, making it more attractive to customers. However, original equipment manufacturer (OEM) revenues actually fell by 15% (16% at constant currency) to $690 million, compared with the first quarter of 2002. And total hardware revenues from continuing operations were $5.8 billion, a decline of 1% (6% at constant currency), compared with the first quarter of 2002.

Still, according to IBM, revenues from eServer xSeries Intel-based products increased, and revenues grew for both IBM pSeries UNIX-based servers and iSeries midrange servers. IBM says the recently announced p630, with Power4-plus technology, and iSeries servers, with e-business on demand capability, contributed to the overall growth in revenue.

IBM says that revenues from zSeries mainframes were lower in the first quarter because of a combination of customer deferrals of IT decisions and the anticipated introduction of a new zSeries mainframe.

In a similar vein, however, hardware revenues from microelectronics decreased. (IBM says that it was largely related to some non-strategic businesses that it exited last year.) And, year after year, revenues for the personal computer unit declined, consistent with industry trends. Yet, somehow, IBM says its total hardware gross profit margin improved to 26.6% compared with 24.5% in the first quarter of 2002. This may be the result of cost-cutting personnel layoffs and IBM's continued focus on Business Partners' sales during this difficult time.

Software Sustains the Bottom Line

Now compare those patterns in hardware with IBM's revenues in software.

According to IBM, software revenues increased 8% (2% at constant currency) at $3.1 billion compared with the first quarter of 2002. Middleware products, which include WebSphere and DB2 product families, increased 9% (3% at constant currency) in the first quarter of 2003.

Of note too is IBM's recent acquisition of Rational Software during the first quarter for $2.1 billion. IBM says that Rational's post-acquisition profits are included in its first quarter numbers, but it's not clear from IBM's earnings statement if the debt incurred to purchase the company is likewise reflected.

Conclusions: IT Struggles Continue

IBM's earnings during this time of travail are impressive. Yet, because of the weakening U.S. dollar, the gains may reflect some bargain hunting that is occurring in the EMEA and Asia-Pacific regions. The lowered valuation of the U.S. dollar has made IBM products more affordable in countries where IBM has historically been able to charge a premium.

IBM's growth in the services arena, where substantial long-term contracts have been signed, is also an indication that companies are looking to outsource IT services as a cost-control mechanism, instead of bring those services in-house during times of economic uncertainty. IBM claims that this trend reflects the success of its e-business on demand marketing strategy. According to Samuel J. Palmisano, IBM chairman and CEO, "Our results demonstrate that our e-business on demand strategy, which draws on IBM's strengths in business transformation services and open IT infrastructure, is responsive to the needs of our customers."

However, this growth in Services may, in actuality, be a reflection of long-term uncertainty about the global economy.

Likewise, IBM's net increase in software sales may also reflect how the world economy is responding to tough economic times, pulling new software off the shelves or purchasing upgrades to existing software to maximize productivity. It may indicate that there is an excess in hardware capacity that still needs to be overcome within IT. If so, this over-capacity is left from the IT hardware buying sprees of the late 1990s and the lowered business activity of the last three years. Where purchasing of servers has occurred, on the high end of particular server models, it does not necessarily indicate a sudden surge in orders that will lead the IT economy out of its doldrums.

All told, the indications are that IT is still holding its budget very close to the vest, delaying low-end purchases of servers (raising the cost of sales for IT vendors) while relying upon modest purchases of new software to eke out productivity gains. And in this kind of market, IBM is positioned to win: It can make substantial market share gains with its software platforms at modest expense, while shunting off the rise in the cost of hardware sales to its growing legions of Business Partners. Meanwhile, its brand-name visibility makes it look like a bargain in non-U.S. economies as the U.S. dollar weakens, allowing it to, in effect, discount its products without lowing its prices.

But for the IT market as a whole, IBM's Q1 success does not spell the end of the recession. Far from it! According to Palmisano, "Going forward, we are well-positioned to set the agenda and help customers transform their enterprises to realize the benefits, efficiencies, and productivity gains of e-business on demand." But if IBM is focusing on creating an on-demand computing infrastructure, it is doing so because it believes IT's struggle to invest in infrastructure will continue for some time to come.

Perhaps for IBM this means "Surf's up!"

For IT, it means "Tide's out!"

Thomas M. Stockwell is the Editor in Chief of MC Press, LLC. He has written extensively about program development, project management, IT management, and IT consulting and has been a frequent contributor to many midrange periodicals. He has authored numerous white papers for iSeries solutions providers. His most recent consulting assignments have been as a Senior Industry Analyst working with IBM on the iSeries, on the mid-market, and specifically on WebSphere brand positioning. He welcomes your comments about this or other articles and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Thomas Stockwell

Thomas M. Stockwell is an independent IT analyst and writer. He is the former Editor in Chief of MC Press Online and Midrange Computing magazine and has over 20 years of experience as a programmer, systems engineer, IT director, industry analyst, author, speaker, consultant, and editor.  

 

Tom works from his home in the Napa Valley in California. He can be reached at ITincendiary.com.

 

 

BLOG COMMENTS POWERED BY DISQUS

LATEST COMMENTS

Support MC Press Online

RESOURCE CENTER

  • WHITE PAPERS

  • WEBCAST

  • TRIAL SOFTWARE

  • White Paper: Node.js for Enterprise IBM i Modernization

    SB Profound WP 5539

    If your business is thinking about modernizing your legacy IBM i (also known as AS/400 or iSeries) applications, you will want to read this white paper first!

    Download this paper and learn how Node.js can ensure that you:
    - Modernize on-time and budget - no more lengthy, costly, disruptive app rewrites!
    - Retain your IBM i systems of record
    - Find and hire new development talent
    - Integrate new Node.js applications with your existing RPG, Java, .Net, and PHP apps
    - Extend your IBM i capabilties to include Watson API, Cloud, and Internet of Things


    Read Node.js for Enterprise IBM i Modernization Now!

     

  • Profound Logic Solution Guide

    SB Profound WP 5539More than ever, there is a demand for IT to deliver innovation.
    Your IBM i has been an essential part of your business operations for years. However, your organization may struggle to maintain the current system and implement new projects.
    The thousands of customers we've worked with and surveyed state that expectations regarding the digital footprint and vision of the companyare not aligned with the current IT environment.

    Get your copy of this important guide today!

     

  • 2022 IBM i Marketplace Survey Results

    Fortra2022 marks the eighth edition of the IBM i Marketplace Survey Results. Each year, Fortra captures data on how businesses use the IBM i platform and the IT and cybersecurity initiatives it supports.

    Over the years, this survey has become a true industry benchmark, revealing to readers the trends that are shaping and driving the market and providing insight into what the future may bring for this technology.

  • Brunswick bowls a perfect 300 with LANSA!

    FortraBrunswick is the leader in bowling products, services, and industry expertise for the development and renovation of new and existing bowling centers and mixed-use recreation facilities across the entertainment industry. However, the lifeblood of Brunswick’s capital equipment business was running on a 15-year-old software application written in Visual Basic 6 (VB6) with a SQL Server back-end. The application was at the end of its life and needed to be replaced.
    With the help of Visual LANSA, they found an easy-to-use, long-term platform that enabled their team to collaborate, innovate, and integrate with existing systems and databases within a single platform.
    Read the case study to learn how they achieved success and increased the speed of development by 30% with Visual LANSA.

     

  • Progressive Web Apps: Create a Universal Experience Across All Devices

    LANSAProgressive Web Apps allow you to reach anyone, anywhere, and on any device with a single unified codebase. This means that your applications—regardless of browser, device, or platform—instantly become more reliable and consistent. They are the present and future of application development, and more and more businesses are catching on.
    Download this whitepaper and learn:

    • How PWAs support fast application development and streamline DevOps
    • How to give your business a competitive edge using PWAs
    • What makes progressive web apps so versatile, both online and offline

     

     

  • The Power of Coding in a Low-Code Solution

    LANSAWhen it comes to creating your business applications, there are hundreds of coding platforms and programming languages to choose from. These options range from very complex traditional programming languages to Low-Code platforms where sometimes no traditional coding experience is needed.
    Download our whitepaper, The Power of Writing Code in a Low-Code Solution, and:

    • Discover the benefits of Low-code's quick application creation
    • Understand the differences in model-based and language-based Low-Code platforms
    • Explore the strengths of LANSA's Low-Code Solution to Low-Code’s biggest drawbacks

     

     

  • Why Migrate When You Can Modernize?

    LANSABusiness users want new applications now. Market and regulatory pressures require faster application updates and delivery into production. Your IBM i developers may be approaching retirement, and you see no sure way to fill their positions with experienced developers. In addition, you may be caught between maintaining your existing applications and the uncertainty of moving to something new.
    In this white paper, you’ll learn how to think of these issues as opportunities rather than problems. We’ll explore motivations to migrate or modernize, their risks and considerations you should be aware of before embarking on a (migration or modernization) project.
    Lastly, we’ll discuss how modernizing IBM i applications with optimized business workflows, integration with other technologies and new mobile and web user interfaces will enable IT – and the business – to experience time-added value and much more.

     

  • UPDATED: Developer Kit: Making a Business Case for Modernization and Beyond

    Profound Logic Software, Inc.Having trouble getting management approval for modernization projects? The problem may be you're not speaking enough "business" to them.

    This Developer Kit provides you study-backed data and a ready-to-use business case template to help get your very next development project approved!

  • What to Do When Your AS/400 Talent Retires

    FortraIT managers hoping to find new IBM i talent are discovering that the pool of experienced RPG programmers and operators or administrators is small.

    This guide offers strategies and software suggestions to help you plan IT staffing and resources and smooth the transition after your AS/400 talent retires. Read on to learn:

    • Why IBM i skills depletion is a top concern
    • How leading organizations are coping
    • Where automation will make the biggest impact

     

  • Node.js on IBM i Webinar Series Pt. 2: Setting Up Your Development Tools

    Profound Logic Software, Inc.Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application. In Part 2, Brian May teaches you the different tooling options available for writing code, debugging, and using Git for version control. Attend this webinar to learn:

    • Different tools to develop Node.js applications on IBM i
    • Debugging Node.js
    • The basics of Git and tools to help those new to it
    • Using NodeRun.com as a pre-built development environment

     

     

  • Expert Tips for IBM i Security: Beyond the Basics

    SB PowerTech WC GenericIn this session, IBM i security expert Robin Tatam provides a quick recap of IBM i security basics and guides you through some advanced cybersecurity techniques that can help you take data protection to the next level. Robin will cover:

    • Reducing the risk posed by special authorities
    • Establishing object-level security
    • Overseeing user actions and data access

    Don't miss this chance to take your knowledge of IBM i security beyond the basics.

     

     

  • 5 IBM i Security Quick Wins

    SB PowerTech WC GenericIn today’s threat landscape, upper management is laser-focused on cybersecurity. You need to make progress in securing your systems—and make it fast.
    There’s no shortage of actions you could take, but what tactics will actually deliver the results you need? And how can you find a security strategy that fits your budget and time constraints?
    Join top IBM i security expert Robin Tatam as he outlines the five fastest and most impactful changes you can make to strengthen IBM i security this year.
    Your system didn’t become unsecure overnight and you won’t be able to turn it around overnight either. But quick wins are possible with IBM i security, and Robin Tatam will show you how to achieve them.

  • Security Bulletin: Malware Infection Discovered on IBM i Server!

    SB PowerTech WC GenericMalicious programs can bring entire businesses to their knees—and IBM i shops are not immune. It’s critical to grasp the true impact malware can have on IBM i and the network that connects to it. Attend this webinar to gain a thorough understanding of the relationships between:

    • Viruses, native objects, and the integrated file system (IFS)
    • Power Systems and Windows-based viruses and malware
    • PC-based anti-virus scanning versus native IBM i scanning

    There are a number of ways you can minimize your exposure to viruses. IBM i security expert Sandi Moore explains the facts, including how to ensure you're fully protected and compliant with regulations such as PCI.

     

     

  • Encryption on IBM i Simplified

    SB PowerTech WC GenericDB2 Field Procedures (FieldProcs) were introduced in IBM i 7.1 and have greatly simplified encryption, often without requiring any application changes. Now you can quickly encrypt sensitive data on the IBM i including PII, PCI, PHI data in your physical files and tables.
    Watch this webinar to learn how you can quickly implement encryption on the IBM i. During the webinar, security expert Robin Tatam will show you how to:

    • Use Field Procedures to automate encryption and decryption
    • Restrict and mask field level access by user or group
    • Meet compliance requirements with effective key management and audit trails

     

  • Lessons Learned from IBM i Cyber Attacks

    SB PowerTech WC GenericDespite the many options IBM has provided to protect your systems and data, many organizations still struggle to apply appropriate security controls.
    In this webinar, you'll get insight into how the criminals accessed these systems, the fallout from these attacks, and how the incidents could have been avoided by following security best practices.

    • Learn which security gaps cyber criminals love most
    • Find out how other IBM i organizations have fallen victim
    • Get the details on policies and processes you can implement to protect your organization, even when staff works from home

    You will learn the steps you can take to avoid the mistakes made in these examples, as well as other inadequate and misconfigured settings that put businesses at risk.

     

     

  • The Power of Coding in a Low-Code Solution

    SB PowerTech WC GenericWhen it comes to creating your business applications, there are hundreds of coding platforms and programming languages to choose from. These options range from very complex traditional programming languages to Low-Code platforms where sometimes no traditional coding experience is needed.
    Download our whitepaper, The Power of Writing Code in a Low-Code Solution, and:

    • Discover the benefits of Low-code's quick application creation
    • Understand the differences in model-based and language-based Low-Code platforms
    • Explore the strengths of LANSA's Low-Code Solution to Low-Code’s biggest drawbacks

     

     

  • Node Webinar Series Pt. 1: The World of Node.js on IBM i

    SB Profound WC GenericHave you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application.
    Part 1 will teach you what Node.js is, why it's a great option for IBM i shops, and how to take advantage of the ecosystem surrounding Node.
    In addition to background information, our Director of Product Development Scott Klement will demonstrate applications that take advantage of the Node Package Manager (npm).
    Watch Now.

  • The Biggest Mistakes in IBM i Security

    SB Profound WC Generic The Biggest Mistakes in IBM i Security
    Here’s the harsh reality: cybersecurity pros have to get their jobs right every single day, while an attacker only has to succeed once to do incredible damage.
    Whether that’s thousands of exposed records, millions of dollars in fines and legal fees, or diminished share value, it’s easy to judge organizations that fall victim. IBM i enjoys an enviable reputation for security, but no system is impervious to mistakes.
    Join this webinar to learn about the biggest errors made when securing a Power Systems server.
    This knowledge is critical for ensuring integrity of your application data and preventing you from becoming the next Equifax. It’s also essential for complying with all formal regulations, including SOX, PCI, GDPR, and HIPAA
    Watch Now.

  • Comply in 5! Well, actually UNDER 5 minutes!!

    SB CYBRA PPL 5382

    TRY the one package that solves all your document design and printing challenges on all your platforms.

    Produce bar code labels, electronic forms, ad hoc reports, and RFID tags – without programming! MarkMagic is the only document design and print solution that combines report writing, WYSIWYG label and forms design, and conditional printing in one integrated product.

    Request your trial now!

  • Backup and Recovery on IBM i: Your Strategy for the Unexpected

    FortraRobot automates the routine tasks of iSeries backup and recovery, saving you time and money and making the process safer and more reliable. Automate your backups with the Robot Backup and Recovery Solution. Key features include:
    - Simplified backup procedures
    - Easy data encryption
    - Save media management
    - Guided restoration
    - Seamless product integration
    Make sure your data survives when catastrophe hits. Try the Robot Backup and Recovery Solution FREE for 30 days.

  • Manage IBM i Messages by Exception with Robot

    SB HelpSystems SC 5413Managing messages on your IBM i can be more than a full-time job if you have to do it manually. How can you be sure you won’t miss important system events?
    Automate your message center with the Robot Message Management Solution. Key features include:
    - Automated message management
    - Tailored notifications and automatic escalation
    - System-wide control of your IBM i partitions
    - Two-way system notifications from your mobile device
    - Seamless product integration
    Try the Robot Message Management Solution FREE for 30 days.

  • Easiest Way to Save Money? Stop Printing IBM i Reports

    FortraRobot automates report bursting, distribution, bundling, and archiving, and offers secure, selective online report viewing.
    Manage your reports with the Robot Report Management Solution. Key features include:

    - Automated report distribution
    - View online without delay
    - Browser interface to make notes
    - Custom retention capabilities
    - Seamless product integration
    Rerun another report? Never again. Try the Robot Report Management Solution FREE for 30 days.

  • Hassle-Free IBM i Operations around the Clock

    SB HelpSystems SC 5413For over 30 years, Robot has been a leader in systems management for IBM i.
    Manage your job schedule with the Robot Job Scheduling Solution. Key features include:
    - Automated batch, interactive, and cross-platform scheduling
    - Event-driven dependency processing
    - Centralized monitoring and reporting
    - Audit log and ready-to-use reports
    - Seamless product integration
    Scale your software, not your staff. Try the Robot Job Scheduling Solution FREE for 30 days.