IBM drops to near four-year low as investors flee
By Caroline Humer
NEW YORK, May 6 (Reuters) - International Business Machines Corp.<IBM.N> shares dropped sharply on Monday to their lowest level in almost four years, as already jittery investors unloaded IBM after the stock dipped below the psychologically key level of $80.
Shares of the world's largest computer maker, a traditional safe-haven blue-chip stock nicknamed "Big Blue," have been under pressure in recent months. Weak spending on technology by corporate customers has stunted the Armonk, N.Y.-based technology giant's earnings and revenue. Other issues, such as accounting methods, have also hurt investor confidence.
IBM shares fell $5.78, or more than 7 percent, to close at $76 on the New York Stock Exchange, a low unseen since late 1998. IBM's drop knocked about 40 points off the Dow Jones Industrial Average -- accounting for about one-quarter of the Dow's 198-point fall on the day to 9,808.
IBM's stock danced around above the $80 level for much of Monday's trading. But the slide accelerated after shares broke through the $80 level of so-called technical support, one Wall Street trader said.
"It previously had been a "safe name" that people were hiding in, and breaking that support level at 80 -- the real selling began after that," he said.
Last month, IBM issued its first earnings warning in a decade after first-quarter results came in far short of expectations. The company also has been at the center of accounting concerns -- the Securities and Exchange Commission (SEC) said last month that it opened and closed an investigation into the company.
It also has a new CEO, Sam Palmisano, for the first time in almost a decade. He took the reins from long-time head Louis Gerstner, who was credited with turning the company around from losses in the early 1990s.
Chris Galizio, head of technology research at Pioneer Investments in Boston, said he was particularly concerned about IBM's ability to boost earnings because in the past, growth came from Gerstner's history of earnings management.
"Over the last five years, IBM has manufactured earnings," Galizio said. "They've changed pension accounting to make it look more favorable, so that their earnings looked better. They've changed their tax rate and they've been buying back shares, which reduces their share count and increases EPS."
His fund holds IBM shares.
IBM has defended its accounting. During a shareholder meeting last week, Gerstner was asked about the issues by a shareholder and replied: "There are no accounting problems at IBM."
Long-time IBM-er Palmisano has the formidable task of growing the company's revenues at a time when corporations are cutting spending on new technology, said Marty Shagrin, an analyst for Victory Capital, which owns IBM shares.
Before IBM shares do much better, Shagrin said, the company must show its services business -- which has been growing while hardware sales have been shrinking -- is going to post more than incremental growth.
"When things were going well, this was really a services-led story and that business starting in the December quarter and carrying through this quarter, fell off its growth track," Shagrin said.
05/06/02 18:06 ET |
