Monday, August 04, 2003

I.B.M.'s Fragile Chip Business

I.B.M.'s Fragile Chip Business "I.B.M. has moved steadily away from technology manufacturing, a cyclical, capital-hungry business, increasingly focusing on services and software. I.B.M.'s hardware businesses — server computers, personal computers and chips — account for 31 percent of revenue these days, down from 43 percent in 1999. As the disappointing second quarter suggests, the semiconductor business accounts for very little of I.B.M.'s revenue — about 3 percent — but it can hurt the company's earnings when things go badly.
I.B.M.'s technology group, consisting mainly of the semiconductor business, lost $111 million before taxes last quarter, reducing company earnings by more than 4 cents a share. Most analysts expected the technology group to show only a relatively slight loss for the quarter, perhaps $10 million to $25 million.
"It was a major miss for the microelectronics division," said A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company. "There have been doubters before about I.B.M.'s semiconductor strategy. And the doubters, at least for now, seem to have a valid concern."
Two weeks ago, Michel Mayer, the second-ranking executive in I.B.M.'s technology group, was moved out of his job and has not yet been reassigned."

Don't panic yet; I'm sure Macs and PlayStation 3s will make all the difference; maybe IBM Global Services can find a way to displace Windows PCs in the enterprise with PlayStations...
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