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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: puborectalis who wrote (5555)	9/17/1999 7:02:00 PM
From: puborectalis	Read Replies (1) \| Respond to 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.

To: puborectalis who wrote (5555)	9/17/1999 7:04:00 PM
From: puborectalis	Respond to of 8219

Friday September 17 6:28 PM ET IBM Falls On Analyst Caution Over Q3 Results By Eric Auchard NEW YORK (Reuters) - Shares of International Business Machines Corp. (NYSE:IBM - news), the world's largest computer maker, slid as much as $6 after a Merrill Lynch analyst trimmed his estimate for hardware revenue growth in the third-quarter. In a note to clients, analyst Steve Milunovich said he had cut his estimate for hardware sales growth in the September quarter to 4 percent from 6 percent. His concern over possible slowing computer hardware sales could well set the pace for the way dealers view upcoming earnings for many high-tech companies. He cut estimates due to difficult comparisons with strong year-ago results in its mainframe and personal computer businesses, which constitute the bulk of IBM hardware sales. IBM stock, leading the New York Stock Exchange's most active list, recovered somewhat in heavy late-afternoon trading to end the day down $4-5/8 at $125-3/8, returning to the range within which it traded during August's doldrums, before it began a recent surge toward spring's record level of $139. The top Merrill technology analyst said he was still confident overall IBM revenues and earnings would be in line with current expectations, but worried that investors could react to the sluggish hardware growth and exit the stock after the third-quarter results are published in mid-October. ''We believe earnings will be reported essentially in line with our expectations but we think there may be a quality of earnings issues in 4Q (fourth quarter) and the stock could react negatively,'' he wrote, referring to the hardware concerns. He maintained his buy rating on the stock. However, other analysts questioned what was new in Merrill's numbers, since most brokerage have calculated low single-digit revenue growth into their hardware estimates. Kevin McCarthy, an analyst with Donaldson, Lufkin & Jenrette, said he was only counting on 3.6 percent hardware growth in the third quarter, but 8 to 9 percent growth in overall revenues during the same period. ''I really don't know if anybody had anything different,'' McCarthy said referring to how Wall Street's general consensus has been to expect low-single digit growth for IBM hardware sales and high single-digit rates for overall revenues. Milunovich kept his earnings estimate of 91 cents per share for the computer maker's third quarter, in line with McCarthy's view, and the consensus among Wall Street analysts in general, according to a recent Thomson Financial/First Call survey. The influential Merrill Lynch analyst said his concern about hardware growth centered on mainframe revenues which are likely to be down more than 10 percent this quarter. ''This does not surprise us because the company is facing difficult comps,'' he said, using financial shorthand that refers to comparisons with the year-ago period, when IBM introduced its hot-selling G5 mainframe series, making relative gains in growth more difficult to achieve. ''Typically investors react to hardware numbers when IBM reports results, which is why we are a bit concerned,'' he said. While noting that over the long-term he believes IBM's computer services and software will drive the company's performance, ''On a quarterly basis, hardware appears to drive the numbers,'' he said. ''We think investors may focus on a mediocre hardware growth number of 4 percent in the quarter.'' He also said he was concerned by the performance of IBM's AS/400 minicomputer line, machines that typically are targeted to run the key business operations of mid-sized businesses. While McCarthy said he believed investors had overreacted to Merrill's report, he noted that IBM faces an air of uncertainty heading into the end of this year, when corporate computer buyers -- IBM's bread-and-butter customers -- may hold back on new purchases to fix possible Year 2000 glitches. ''I do think that during the October conference call their will be caution in the air,'' he said referring to the quarterly conference call IBM executives typically hold with Wall Street on the heels of financial reports. The third-quarter report is due out the week of October 20.