IBM's Sales Fall 5 Percent In Chip Unit

SAN JOSE, Calif. — IBM Corp. on Monday (July 18) reported a decline in sales within its microelectronics unit amid an ongoing transition to the consumer-chip market.

Sales within IBM’s Microelectronics Group fell 5 percent in the second quarter, compared to the like period a year ago. The decline comes as the company is moving towards the “gaming processor market in the second half,” said Mark Loughridge, chief financial officer for the computer giant, during a conference call with analysts.

The CFO dropped hints that its chip and foundry business are still losing money. He said one of the goals for the unit is to attain “profitability.” He did not break out the exact sales or profits for the group.

Meanwhile, on the consumer-chip front,IBM has garnered design wins for its embedded processor line from game-machine vendors, including Microsoft Corp. and Sony Corp.

But in June, Apple Computer Inc. said it will use Intel Corp.'s x86-based microprocessors for its Mac computers, thereby ending its MPU partnership with IBM. Apple has used IBM's PowerPC processors within its Mac computers since 1994. But IBM reportedly experienced an assortment of delays and supply problems for the PowerPC to Apple (see June 4 story).Overall, IBM posted revenues of $22.3 billion in Q2, down 4 percent versus the second quarter of 2004, but up 6 percent without the impact of the divested PC business. Excluding the revenue from the divested PC business, second-quarter revenues increased 6 percent (4 percent, adjusting for currency) compared with the second quarter of 2004.

Second-quarter income from continuing operations was $1.85 billion, including the non-recurring pretax items for incremental restructuring charges of $1.7 billion, offset by a $1.1 billion gain on the sale of the PC business, and a $775 million settlement received from Microsoft. Without these non-recurring items, income from continuing operations was $1.82 billion as compared to $1.74 billion in the second quarter of 2004.

IBM announced second-quarter 2005 diluted earnings per common share of $1.14 from continuing operations, including a $0.72 per share of incremental charges related to workforce reductions, a $.45 per share gain on the sale of its Personal Computing business, and $.29 per share of other income due to a settlement agreement entered into with Microsoft. Without these non-recurring items, diluted earnings per share were $1.12 compared with diluted earnings in the second quarter of 2004 of $1.01 per share.

Samuel Palmisano, IBM chairman and chief executive, painted a mixed picture. "IBM made several strategic and important transitions in the second quarter. We seamlessly moved our PC business to Lenovo, implemented a streamlined management system in Europe, and restructured important parts of the company for future growth,” he said in a statement.