Model Management: Old timers have their day

Less than a decade ago both were being written off as basket cases that had failed to respond to the new high-tech, especially internet, era. But, as new economy stalwarts such as Cisco Systems and established high-techs like HP and Eastman Kodak weighed in with warnings about earnings, who really pleased the analysts?

Although Apple issued an earnings warning and reported its first loss since 1997 earlier this year, it has astounded the markets by reporting a profit of $40m, or 11 cents a share, excluding investment gains, for the latest quarter. This was way above estimates of one cent a share.

IBM did even better, though it only reported earnings in line with Wall Street estimates and left unaltered its predictions for the full year.

So what have these two got that the rest of the high-tech sector lacks?

Well, first, they are not immune to what is going on in the US and the rest of the world. Apple, which has made hefty price cuts to ease inventory problems, is worried about sales in Europe, and some of its models are selling poorly. IBM, meanwhile, has been affected by the slowing PC market.

But what they both have are robust business models.

Apple, for example, has shown that PCs do not need to be boring boxes. Adding colourful, eye-catching design values to an operating system that has always been ahead of the field has proved a winning combination. Yes, PCs can be sexy - especially the Titanium Powerbook G4 laptop, the main factor behind this quarter's pleasant surprise.

And IBM is reaping the benefit of its commitment to the abandonment of its mainframe image. In fact, the majority of IBM's 15 per cent Q1 earnings rise compared to a year ago came from its IT services group. With 140,000 consultants, IBM's is the largest IT services business in the world and the envy of Sun Microsystems, HP and the like. As well as providing its own profits, the services group is a conduit for other IBM products such as hardware, software, and outsourcing. And while desktop devices may have suffered, IBM continued to make reasonable returns from mainframes.

"In the face of weakening economic conditions, the validity of the strategies we put in place over the last five years was underscored time and time again. Times like these play to our strengths as a diversified, services-led company," IBM chairman and chief executive Lou Gerstner commented.

Once upon a time, Apple and IBM were the movers and shakers of the computer industry, but they lost that status to upstarts of the new economy such as Dell. In a recession, the old hands may yet have a trick or two up their sleeves.

IBM's Lou Gerstner features in silicon.com's Agenda Setters 2001. To find out more, visit http://www.silicon.com/as2001