5

P> Total Contracts $692,782,000

http://www.ibm.com/

IBM Corp. Chairman and CEO Louis Gerstner Jr. is breathing a little more easily these days. In 1994, Gerstner announced that IBM was once again in sound financial shape, but wondered whether the giant corporation had the capability to grow.

This year, he answered his own question with a resounding "yes." The company's 1995 revenues topped $70 billion for the first time in IBM history. And the rate of revenue growth - 12 percent more than 1994 - was the best in more than a decade. Earnings doubled to $6.3 billion, excluding a one-time charge related to the purchase of Lotus Development Corp. and two special items taken in the fourth quarter. IBM ended 1995 with more than $7.7 billion in cash. That's after it spent $5.7 billion to repurchase IBM stock and $2.9 billion to buy Lotus.

Gerstner also seems to be closing in on his goal to reduce expenses by $8 billion by mid-1996. By the end of 1995, re-engineering efforts that started in 1993 reduced expenses by more than $7 billion.

The re-engineering also spawned a new focus on the global government market. IBM sold its federal unit to Loral in 1994, but decided to set up a new Government Systems Group, which focuses on vertical markets worldwide. Because of the longer buying cycle for government procurements, there is still a relatively strong focus on hardware and software within this group, but interest in services, such as outsourcing, is starting to grow and mimic IBM's commercial successes in that area.

One of IBM's biggest U.S. government contracts is with the U.S. Forest Service. The agency awarded Big Blue a $276 million contract to set up a network connecting 30,000 people in more than 800 field offices. It will be one of the world's largest deployments of geographic information systems.

Despite its financial woes in past years, IBM continues to do well selling hardware and software through the General Services Administration's schedule. In fact, for fiscal 1995, IBM topped the list with $151.5 million in sales. The closest schedule competitor, Digital Equipment Corp. of Maynard, Mass., came in far behind with $45.1 million in sales.

IBM also scored another coup last year, albeit outside the government arena. For the first time, one company will provide a total information technology package for the Olympics, and that company is IBM.

But Gerstner still faces some tough challenges. He wants to make IBM a leader in network computing. The Internet has helped people realize the potential of digital networks to handle video, high-resolution images and electronic commerce. And IBM wants to capitalize on that potential through the IBM Global Network and other offerings, such as its infoMarket World Wide Web site, where publishers can sell their wares. The company also has established an Internet consulting practice and plans to add 1,000 Internet consultants and systems integration experts by year's end.

IBM also is capitalizing on the move to network computing through its Integrated Systems Solutions Corp. services division, which is one of the company's fastest-growing businesses. In 1995, the $12.7 billion services division became the second-largest source of revenue for IBM, with a 31 percent increase over 1994 figures. It employs more than 80,000 people who provide consulting, systems integration and solution development services worldwide.

Reportedly the world's largest software company, IBM benefited tremendously from the Lotus acquisition -- and so did Lotus. The purchase increased IBM software revenues 12 percent to $12.6 billion. Since that time, the installed base of Lotus Notes has more than doubled. More Notes installations were sold during the last six months of 1995 than in the product's six-year life.

But the news isn't all good. Although revenue from hardware sales increased 10.1 percent to $35.6 billion, sales in other areas declined. Storage product revenue decreased 6.9 percent, following a 26.1 percent decrease in 1994. Personal systems grew 15.1 percent last year, but it was a slight drop from 1994's 17.7 percent increase. Still, revenue from server sales increased 9 percent, following a 2.7 percent decrease in 1994. Dollar amounts for each category were not available.

The company continues to invest heavily in research and development. In 1995, for the third year in a row, IBM's 1,383 patents were the most ever issued to one company in a year.

The challenge for IBM in the coming year will be to capitalize on the gains that it has made in the last year. It is making strategic acquisitions and trying to transform its blue-suit image into a more relaxed and hip company.

Financial Highlights

Revenue (in billions)

1993 $62.7

1994$64.1

1995$71.9

Net Earnings (in billions)

1993$(8.1)

1994$3.0

1995$4.2