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By Barbara Morgan, 21 July 1999 12:29

NEWS IBM's European sales force has been labelled as the culprit for the one major negative in the company's latest financial performance. The company's announcement of its second quarter results on Monday mentioned its midrange series, the AS/400, just once. The sentence said simply that "AS/400 revenues declined," but later, in a conference to explain the results, IBM chief financial officer, Douglas Maine, described the sales dip as a "debacle in Europe". Sales of the midrange series had actually increased in the US during IBM's second quarter, but that growth was wiped out by the European operations. Maine said: "The AS/400 product line suffered a debacle in Europe. It was a very poor sales execution that led to an overall revenue decline for the product." "IBM obviously had sales management problems in Europe, probably replacing people. This is not the first time this has happened," said Bob Djurdjevic, president of Annex Research. "A couple of years ago - again in Europe - a similar situation occurred. The explanation, at that time, was that IBM had been trying to switch from a direct to indirect channels. But during that transition, it all fell through the cracks." Despite the AS/400 shortfall, IBM reported 22 per cent growth in its hardware business, with the S/390 and the RS/6000 doing particularly well. PC shipments grew 50 per cent - from $2.6bn to $3.9bn - but the unit had a pre-tax loss of $153m. In other words, the more PCs IBM sells, the more money its shareholders lose, Djurdjevic pointed out. IBM's operating profit for the second quarter rose 17 per cent to $1.69m from $1.45bn. Its revenues were up 16 per cent to $21.91bn from $18.82bn.