From the Wall Street Journal:
IBM Sees Signs of Stability
In Technology Spending
By DONNA FUSCALDO
DOW JONES NEWSWIRES
Despite key contract wins in the computer-services market, International Business Machines Corp. expects business conditions in that industry to remain challenging throughout 2003, according to analyst Andrew Neff of Bear Stearns & Co.
Mr. Neff, who met with Big Blue's services chief Doug Elix this week, said that while spending on technology gear will remain challenging this year, IBM is seeing some areas where companies are willing to plunk down money.
"Both Elix and Joyce [IBM's chief financial officer] have talked about a stabilizing business environment and the impression is that IBM thinks that things are at the bottom," Mr. Neff wrote in a research report Friday. "However, the key is assessing how strong the recovery will be and when it will start."
According to Mr. Neff, IBM believes many companies have stabilized their businesses and are picking areas to spend money on, in an attempt to better position themselves from a competitive standpoint. Mr. Neff said Mr. Elix "indicated" that the U.S. has seen some "sparks of life" while Europe and the Asia-Pacific region remain weak.
While the analyst is confident about Big Blue's long-term position in the services market, he said he was "mildly discouraged" that the potential for earnings upside at IBM will be limited because of a lack of margin expansion in services.
"Elix was generally hesitant to call for any improvement in gross margins on the services side -- without corresponding top-line growth from greater volumes -- owing to aggressive pricing and overcapacity which should be offset by continued cost-cutting efforts," wrote Mr. Neff.
The analyst noted that even though IBM indicated there could be future acquisitions in services in such areas as business-process outsourcing, much of the company's focus will be on integrating its acquisition of PricewaterhouseCooper's consulting arm, PWC, which the company bought for $3.5 billion.
Mr. Neff doesn't own shares of IBM, but Bear Stearns has an investment-banking relationship with the company.
Officials at IBM weren't immediately available for comment.
Write to Donna Fuscaldo at donna.fuscaldo@dowjones.com
Updated February 7, 2003 2:39 p.m. EST |
