Internet Growth Lifts IBM

IBM's shares surged to new highs Thursday after IBM's Lou Gerstner said Big Blue's Internet business surpassed the combined sales of 25 pure-play cyber shops and said offline companies will be the real winners of the Web.

Shares of IBM (IBM), a component of the Dow Jones industrial average, shot up 14 1/2, or 6.4 percent, to 240.

At noon ET, the Dow advanced 113.40 points, or 1.0 percent, to 11,114.39. IBM accounted for almost one-half the Dow's rise.

Gerstner, who addressed analysts in Manhattan late Wednesday, said that $20 billion in sales, or 25 percent of the company's total revenues, is Net related.

By comparison, he said the top 25 Internet companies, including Amazon.com (AMZN) and Yahoo (YHOO), generated $5 billion in total sales and had $1 billion in total losses, according to a study.

Additionally, Gerstner gave a forecast for the company's Internet sales. He said revenues could grow to $10 billion, a fourfold increase from IBM's Net sales in the first quarter.

IBM will also procure $12 billion worth of equipment over the Web, which will eliminate 5 billion pieces of paper, analysts said.

As he appeared to pierce holes in the lofty valuations of Web darlings, Gerstner said traditional companies, such as Wal-Mart (WMT), and Banc One (ONE), will change the competitive landscape for Amazon.com (AMZN) and NetBank (NTBK).

The greatest value being created is not in the new ".com" Net companies that people believe will "gobble up" traditional industries, said Gerstner.

While a couple may be profitable, he said many are just "fireflies before the storm."

The real storm or "disturbance," he elaborated, would be when the thousands of institutions see the "power of the global infrastructure - that's the real revolution."

Gerstner's e-business initiatives were well received by Wall Street. PaineWebber came out with a report Thursday morning titled: "Internet Business Machines."

Daniel Niles, analyst at BancBoston Robertson Stephens, said IBM expects 20 newly created e-business services to grow at 40 percent this year to $3 billion with e-business sales in total projected to grow at 20 percent for the industry.

Written By Bambi Francisco, CBS MarketWatch