Big Blue's Service Business Is Looking Pretty Blue

For years, IBM has been moving aggressively into the computer-services business. And for years, competitors have wondered how the company could afford to cut some of its bid-winning deals. Well, IBM's rivals got a hint on Jan. 25, when the fourth-quarter results came out: The revenue from services soared to $3.2 billion, up 32% from the fourth quarter of 1992, but gross profit margins sank to 11.5%, down from from 15%.

It turns out that IBM hasn't made any money on some of its early deals. After a worldwide review of the company's service business, Chief Financial Officer Jerome B. York says auditors turned up 25 money-losers, representing $200 million worth of business. Writing down these contracts sliced 7% off IBM's gross profit margin in services for the fourth quarter. York says that pretty much takes care of the losers on IBM's books. Perhaps, but rivals eagerly await IBM's next report.

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