IBM Message Board - Msg: 11286851

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Technology Stocks : IBM

IBM 300.98

+0.2%

Dec 19 9:30 AM EST

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To: puborectalis who wrote (5555)	9/17/1999 7:02:00 PM
From: puborectalis	Read Replies (1) of 8219

Merrill Analyst Reduces Hardware Sales Estimate for IBM By Cintra Scott IS TROUBLE lurking around the corner for Big Blue? Quite possibly, says Steve Milunovich, Merrill Lynch's manager of technology research. Milunovich told investors this afternoon that he is concerned about the likely pressure on IBM (IBM) stock after the company reports its fiscal third-quarter earnings next month. Slumping hardware sales are the reason. But Milunovich -- who recently chose IBM as one of his top 10 tech ideas -- said he is less concerned about IBM's earnings than he is about investors' likely reaction to them. After speaking to IBM management this week, Milunovich is lowering his estimate for IBM's hardware sales from 6% to 4% growth. Milunovich says the reason for his concern is IBM's slumping mainframe revenue. He expects mainframe revenue to be down 10% this quarter. "This does not surprise us because the company is facing difficult comp[arison]s," he wrote. "Typically investors react to hardware numbers when IBM reports results, which is why we are a bit concerned." That concern is understandable, considering that IBM's hardware numbers generally generate the fattest profit margins. As Milunovich delicately puts it: "We think there may be a quality of earnings issue in 4Q..." The former hardware analyst -- recently promoted to oversee Merrill's global technology research -- thinks software and services will drive IBM's growth, making up for the hardware shortfall. That is why Milunovich continues to expect revenue to grow 9% overall. One final red flag for mainframes: Milunovich warns that while IBM does not expect to face Y2K problems, if such problems did occur, it would be in the mainframe and server businesses. The analyst sure seems to be beating around the bush regarding Big Blue's blues.

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