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Sunday July 18, 4:27 pm Eastern Time
IBM seen reporting solid
second-quarter results
By Eric Auchard
NEW YORK, July 18 (Reuters) - International Business
Machines Corp. (NYSE:IBM - news), the world's largest
computer maker, is seen reporting solid second-quarter results on
Monday as doubts overhanging conditions in several key businesses have lifted.
Investors have throttled shares of the Armonk, N.Y.-based company up 60 percent in the past three
months to record highs, in a race that is the envy of ''.com'' Internet stocks like Yahoo! or
Amazon.com, which have sold-off in the same period.
Wall Street is looking for IBM to post healthy revenues of $21.5 billion, up 14 percent from a
year-ago, amid a growing feeling that an expected 1999 slowdown in computer spending linked to
Year 2000 repair work has been over-dramatized.
Brokerage analyst earnings estimates range from 85 cents per share to 92 cents per share, with
momentum traders whispering that IBM could post results in the high end of the range, around 91 or
92 cents per share, traders said.
''We expect IBM to meet or beat our second-quarter EPS (earnings per share) estimate of 90 cents,''
Amit Chopra, an analyst with brokerage Credit Suisse First Boston, said in a note to clients last week.
Daniel Kunstler, a financial analyst with J.P. Morgan said he expected IBM's report to strike a
positive tone in line with other major high-tech companies that have reported this month.
''We are down to the straight track in front of the finish line and the sky hasn't fallen,'' Kunstler said
of the growing confidence among investors over IBM's results for the remainder of the year, as
concerns evaporate of a Year 2000 meltdown.
Kunstler projects IBM will report earnings of 87 cents per share, a penny below the 88 cents per
share consensus among analysts for the second quarter, according to First Call Corp., which compiles
brokerage estimates. The 88-cent figure would mark earnings per share growth of 17 percent from a
year-ago.
Still, in the wake of recent strong gains in IBM's stock price, with the easiest half of the year now
past, and earnings comparisons tougher in the second-half of 1999 versus 1998, IBM stock could stall,
cautioned Bear Stearns analyst Andy Neff.
But Neff, the lead technology analyst at Bear Stearns, was optimistic in a note to investors on Friday,
noting how Year 2000 concerns, which have acted as a drag on the shares of major computer makers
for the past 18 months, have ''gone away.''
''The earnings season ended one day into the season,'' Neff said. ''The 2Q (second quarter of 1999)
earnings season for computers essentially ended with Intel's pronouncement of a 'strong second
half.'''
''Y2K is 'out,''' Neff said, using the catch-phrase for Year 2000 fears. ''Year 2000 earnings are 'in,'''
he added of the pent-up demand expected to loosen up as computer buyers resume aggressive
spending in order to surf the e-business wave.
CS First Boston's Chopra projects IBM results to continue to be driven by growth around 20 percent
in its computer services business -- now one-third of total revenues -- and in its profitable software
business, with growth of 10 percent.
For services to grow 20 percent IBM must hurtle over a tough year-ago comparison, when the
company's services business grew 23 percent in the second-quarter, excluding mainframe
maintenance business, Salomon Smith Barney estimated.
Computer hardware revenues should approach 15 percent growth, he said, driven primarily by healthy
personal computer revenue gains approaching 50 percent year-over-year -- an easy comparison due
to a sluggish PC performance early in 1998.
Meanwhile, refreshed mainframe and workstation product lines should shore up sales of IBM's larger
computer systems, although its struggling AS/400 line of minicomputers will weigh down overall
hardware sales growth, analysts predict.
Positive swing factors for IBM profitability this quarter and the remainder of the year to be in the
performance of its computer services, personal computers and technology component supply
businesses versus expectations.
''As usual there are factors in both directions, but 2Q99 results should be solid, owing to easy
hardware comparisons and strong services sales,'' Neff wrote, summing up the positives. ''But the
disk drive and DRAM (computer memory) business could pull in the other direction,'' he said of the
negatives.
In U.S. trading on Friday, IBM stock closed at $136.25, just off an all-time high, adjusted for stock
splits, of $139.19 set early last week, and up from the $84.88 low on April 21 just prior to when IBM
released its first-quarter earnings results.
The IBM financial report was due to be released after the close of regular session trading Monday.
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