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Analysis of IBM Credit Corp. Third Quarter Business Results

Revenues Up, New Business Financing Down

ICCís Software and Services Growth Slow Relative to IBM Global Servicesí

PHOENIX, Dec. 23 - IBMís U.S. financing subsidiary, IBM Credit Corp. (ICC), turned in its scorecard for the third quarter, and the results showed itís still largely an iron-driven operation.  As IBMís hardware fortunes swing up and down, so do ICCís.  Which means that lately, both have been mostly down.

Unlike IBMís, however, ICCís third quarter results were boosted by what appears to be a massive re-sale of used equipment coming off its leases.  Third quarter equipment re-sales revenues more than doubled from a year ago, from $75 million to $153 million.  This pushed the nine-month total to $423 million, up 20% from the first nine months in 1999.

Operating leases, income from loans and working capital financing revenues also increased in double digits since a year ago.  But revenues from capital leases (less lease renewals) were up less than 2%.  Other income declined 27%, mostly as a result of a one-time boost to the 1999 results that the sale of IBM Global Network to AT&T provided to IBM and ICC.

A big drop in the provision for accounts receivable losses (-99% for the third quarter, and -61% for the first nine months), boosted ICCís profitability.  Net earnings were up 3% and 4% respectively during the same periods.

Slow New Financing Growth

When it comes to new financing, however, most of the ICC business segments were down during the first nine months of the year.  Two exceptions were software and services and other financing, which is where some of those big used equipment sales were reported.  But although the software and services new financing was up 14% to $1.2 billion, such a growth rate is still quite slow relative to the Text Box:  explosive growth of IBM Global Services new business signings.  Which suggests that ICC has not been not fully participating in the only IBM success story of the 1990s.

As a result, ICC software and services share of the new end user financing volumes was only 28% during the first nine months of the year.  This compares to a 44% share of IBM corporate revenues that these two categories represent.  

More importantly, ICC software and services new financing has grown at a compound annual rate of only 17% during the last five years (1995-2000).  On the other hand, IBM Global Services new contracts volume alone has surged by more than 41% annually during the same time frame.

Text Box:

And so, as go the big iron sales by IBM, so goes the ICC financing.

ICCís funding of PCs and workstations through the so-called working capital financing of dealer inventories has accounted for the biggest new business volumes in the 1990s.  Yet even that category, while still by far the largest, has been down this year.

The working capital financing accounted for $3.4 billion or 67% of ICCís third quarter new financing volumes, down 10% from a year ago.  For the first nine months of 2000, it was $9.5 billion or 69% of the total new business, also down 10% compared to 1999.

Happy bargain hunting!

Bob Djurdjevic





























































Volume XVI, No. 2000-28
December 23, 2000

Editor: Bob Djurdjevic
Published by Annex Research

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