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To: puborectalis who wrote (92560)	11/15/1999 11:47:00 PM
From: puborectalis	Respond to of 186894

Another one for the retirement........ Stock Of The Week Monday November 15, 1999 (08:15 am ET) S&P Focus Stock of the Week: IBM NEW YORK, Nov. 15 (Standard & Poor's) - We recommend buying International Business Machines (IBM, ranked , or buy), given its position as a leading electronic commerce enabler. E-commerce, the amount of business conducted directly on the Internet, increased 127% from the first quarter of 1998 to the first quarter of 1999, and the next two years are critical the explosion of e-commerce. Growth of 149% is projected in 1999 to $127 billion and in 2000 another 123% gain is seen, reaching $283 billion. By 2003, e-commerce is expected to be a $1.4 trillion market. As companies increasingly adopt e-commerce, due to the productivity benefits yielded, we believe IBM is uniquely positioned to capitalize on this growth given its expertise in consulting, software solutions, and line-up of large, reliable servers. We believe the world's largest computer company is uniquely poised to benefit from its leadership as e-commerce infrastructure play in two ways: we project the company's shares will witness P/E (price/earnings) multiple expansion due to its competitive advantages in this fast growing market; and we estimate IBM's revenues and earnings growth will gain momentum as it continues to benefit from its first mover advantage in e-business. Along with the need for Internet infrastructure like servers and storage (which IBM offers), the Internet economy has accelerated demand for services and software even more. These two areas happen to be where IBM get 70% of its profits and has unique capabilities and strong competitive advantages. Demand for e-commerce has helped fuel IBM's service's revenue to growth of 15%-20% annually. (Services contribute 37% of IBM's total revenue.) It also adds to earnings predictability due to its annuity-like revenue stream. IBM has consistently signed more than $9 billion in new services contracts each quarter this year, and has amassed a backlog in its services deals of more than $57 billion. IBM has much experience consulting with a wide variety of industries on their IT (Information Technology) assets. IBM understands the business models for these industries and can help deploy a top-to-bottom e-commerce strategies. No other computer company has this level of experience, skill, and expertise. Software, specifically middleware, has emerged as a critical component of the e-commerce buildout. IBM's total software sales (contributing 14% of IBM's total) have been growing at a roughly 8% clip, while its middleware category is growing at a 14% rate. At nearly $13 billion in annual software sales, IBM is not far behind Microsoft's roughly $20 billion and exceeds Oracle's $9 billion. While the shares have recently corrected on disappointing mainframe sales in the third quarter, which are expected to persist through the fourth quarter of 1999, we believe this presents an unique buying opportunity. IBM, holding about 75% share of the mainframe market, was uniquely vulnerable to a much earlier than expected slowdown in mainframe purchases as many large corporations rededicated mainframes used for Y2K testing for other workloads, including e-commerce. S&P has learned from discussions with many banking-related companies and consultants that this was indeed the case, and that the weakness does not reflect dissatisfaction with IBM's products. In addition, IBM has recently put well-regarded senior executive Sam Palmisano in charge of its Server unit, and we believe 2000 will reflect a material improvement in sales in this area. IBM's asset management has been impressive. The company generated $7.3 billion in cash from operations in the third quarter of 1999, which accelerated from a prior year level of $5.5 billion. We project earnings per share growth of 18%-20% in the year 2000, accelerating from 1999's projected rise of 12% and noticeably higher than 1998's rate of 6.4%. Meanwhile, the shares are selling at a discount to the market - just 22 times our 2000 estimate of $4.35. The bad news regarding mainframes was largely a 1999 fourth quarter event. Looking to 2000, we believe investors will be attracted to the shares for IBM's reasonable valuation, leadership position, and its standing as a key beneficiary of the Internet economy.