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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (31245)	4/19/2000 4:50:00 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

The two earnings today, IBM and INTC both came on the upside but the analysts in the street are not happy about them. Although IBM had warned of a difficult quarter as a result of YK2 problems, this severe attitude of the street is good for the market. The stocks have to really perform without any doubts, topline and bottomline improvements otherwise any cosmetic application is not accepted. Despite Earnings Surprise, IBM's Quarter Nothing to Write Home About by Joseph Beaulieu \| 06:20 PM \| 04-18-00 Technology bellwether IBM IBM reported March-quarter earnings substantially higher than Wall Street's target, but it still wasn't pretty. IBM's March quarter looked ugly on its face. Total revenues were down nearly 5% year-over-year, with hardware sales down 11%, software and services revenues flat, and only financing revenues showing improvement. Expenses were down 6% due primarily to tight SG&A controls, with reduced commissions from the revenue decline likely contributing as well. The bottom line was net income growth of 3.3%, and earnings-per-share growth of 6.4% due to stock repurchases. During the post-release conference call, management acknowledged that this was a difficult quarter for the company, but still insisted that it was on target to meet analysts' revenue and earnings per share targets for the 2000 fiscal year. But since IBM actually beat the March-quarter consensus estimate by $0.05, this guidance would suggest that analysts are going to cut a nickel out of their earnings estimates over the course of the next three quarters. Generally speaking, there were three broad issues at work in the March quarter. The first is that IBM has been undergoing a substantial restructuring process by exiting low-margin businesses. For example, IBM sold its global network to AT&T T in the second quarter of last year, and as a result dropped $275 million in revenues. However, the company believes that it can outsource network services at a lower cost in the future. Another example is IBM's exit from the market for high-volume memory chips. While memory-chip revenues were down 22% year-over-year, the company slashed its chip-related losses in half. A final example is IBM's network-hardware business, which was down 60% due to the sale of some rights to Cisco CSCO. The second issue is the much-dreaded (but little-observed) Y2K effect. IBM has reported that many of its customers were in Y2K lockdown mode (i.e., not installing new hardware or software) well into the March quarter, delaying some sales. Additionally, Y2K remediation services came to a close in the March quarter, shutting the door on $1 billion in annual revenues, and cutting into services revenue. Finally, many customers had purchased redundant servers, in order to run testing systems and "production" (i.e. real business) systems at the same time. Once Y2K came and went, they had these left-over testing systems, which they were able to put to work instead of purchasing even more computers. The company believes that most of this excess computing capacity has already been put to work. The third issue at work in the quarter was run-of-the-mill execution problems. The company missed the boat on 10,000 RPM disk drives, and as a result, revenue from hard-disk drives was down $350 million year-over-year. Additionally, software and services contracts that were expected to close in the first quarter slipped over into the second quarter. All things considered, IBM's March quarter wasn't as bad as it looked on the surface. A substantial portion of the company's declining revenues resulted from the company's strategic exit from various low-margin markets. Despite the March-quarter difficulties, management was very optimistic about the second half of the year, and pointed to strengths in its services, middleware, and server businesses. At 26 times fiscal 2000 EPS estimates, IBM looks neither particularly expensive nor particularly cheap. Wall Street is likely to react negatively to IBM's disappointing revenue figures, so patient long-term investors may consider taking advantage of any weakness in the stock.