IBM's Gerstner seeks to reassure on revenue growth

NEW YORK: International Business Machines Corp. Chairman and Chief Executive Louis Gerstner on Tuesday told analysts that IBM was on track for growth after a $1 billion first-quarter revenue shortfall, but he stopped short of promising sustained double-digit sales growth.

Gerstner distanced himself from statements made during his speech to analysts last year, when he led some investors to believe that IBM would be able to post revenue growth in double-digit percentage terms every quarter.

"You asked if IBM can grow at double-digits, and we can grow double-digit revenue. We did so in two quarters last year," he said on Tuesday. "But it isn't in our model."

Even though IBM could at times show double-digit growth, Gerstner said, the Armonk, N.Y.-based company would generally deliver high single-digit revenue growth and low double-digit earnings growth. "We still feel very good about this year," he said. "We feel very good about our strategy."

Gerstner, who only speaks to analysts once a year, again outlined IBM's strategy of providing the hardware, software and services to help businesses move their operations online.

The reaction among analysts contrasted with the fervor he whipped up with his speech a year ago, when he detailed how IBM would benefit from enormous growth on the Web.

"Truthfully, this was not a perspective changer," said Sanford C. Bernstein analyst Toni Sacconaghi. "In fact it was a real snoozer relative to last year. This was 'Let me reassure you things are under control,' and I can't see the stock doing much in the short run in reaction to this."

Gerstner said IBM's fundamental business was still strong despite the first-quarter revenue decline, which he linked to one-time events such as the Year-2000 date change and efforts to restructure personal computer sales.

He called Y2K a "blip" in the performance of the company's services division, and said that demand for services was again heating up, especially in Asia and Europe.

Gerstner also said IBM would take further measures to bring its personal computer business to profitability, after exiting U.S. consumer retail sales and turning to the more efficient direct sales model.

"In PCs, we've got a lot of work still to do and a lot to prove," he said. "We're going to slash our cost structure even further in PCs. We're going to drive this unit to profitability."

He did not offer a time frame for when the Personal Systems group would break even, however. Late shipments of server hard disk drives would continue to hurt sales into the second quarter, he said. "In server hard disk drives, we were late and we screwed up the design, and it cost us in the first quarter and and its going to cost us in this quarter," he said.

(C) Reuters Limited 2000.