San Francisco, Oct. 21 (Bloomberg) -- The following are comments by Daniel Niles, Bancboston Robertson Stephens Inc. analyst, on International Business Machines Corp.'s warning that earnings will fall for the next two quarters and the impact on its rivals. The world's largest computer maker said late yesterday that customers are putting off mainframe purchases to make sure computer systems work through the Year 2000 date change.
``The signs have been there -- people have just not wanted to believe it,' Niles said of the Year 2000 issues. ``It's what I call sticking your head in the sand.'
``You've had a lot of (companies) out there (warning about Y2K problems). It's just, nobody wants to focus on it because the reality of it is so painful. That's what people are figuring out today with IBM.'
``Most of the surprises I was predicting have come true at this point. We talked on Oct. 7 that we thought IBM would miss the quarter, when the stock was at 120. They did. We downgraded Dell on Oct. 1. They pre-announced recently.'
``I think you're going to hear Hewlett-Packard, which (reports earnings) some time next month, talk about the fact that they've got some similar issues.'
``Hewlett-Packard, I think most people know, is going to have horrible results. Given the magnitude of IBM's miss, maybe it's even worse than we're all anticipating. Obviously, Compaq -- I don't expect a lot of good news out of them. You have a lot of very large companies, coming out with some very bad news.'
Dell and Intel will be most affected by IBM's warning yesterday, Niles said.
``Dell also does a lot of business in the corporate PC space, where they sell a lot of high-end desktops as well as servers. If you look at IBM's PC business, it went from being up 50 percent year over year in revenue in (the second-quarter), to being up only 11 percent in (the third). Now the thought it will be roughly flat' in the fourth-quarter.
``Intel has a much bigger issue, because there's a mix problem for them. If you're buying a free PC versus a $2,000 corporate desktop, there's a big difference in the microprocessor you stick into each of those things.'
``If you look at Intel as the supplier of microprocessors ... consumer demand may be great and that may help offset the corporate (chip sales), but consumers are buying much cheaper boxes than corporate America is, so that'll obviously affect them.'
¸1999 Bloomberg L.P.
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