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

To: art slott who wrote (3482)	7/14/1998 4:57:00 PM
From: Arrow Hd.	Respond to of 8218

It would be presumptious on my part to question Gerstner on something as macro as Y2K impact so we should assume that it is a wash but I still would be cautious since we have no real quantitative data to predict supplier and customer impact all of which would impact IBM. From a supplier standpoint IBM has gone to sole sourcing for pricing and cost/expense reasons. One glitch with a sole sourcing deal and you are in the Dark Ages. A significant shift in customer IT expenditures hurts IBM less as a full product company but it doesnt balance perfectly. Services for Y2K are basically limited by billable internal resources most of which are committed already with few skilled people available for hire. That is a limitation. The latest G5 has a Y2K software assist to find problems which will assist in closing some hardware sales so that is a plus. Non-compliant hardware replacement by Y2K is a plus. Software re-versioning is a plus. Deferred projects a minus. Sector rotations such as putting off a network upgrade to fix Y2K a minus. And so on. I am sure he has been briefed numerous times on this issue and would not have made his bold predictions of double digit growth had he not been confident. But this is an enormously complex issue. IBM is best situated to weather the problems from a business standpoint but it is hard to call as we saw with low single digit revenue growth the past quarter. Did he tell us to expect this at any point in time? Ricciardi commented about the Olympics and Software Artistry as write-offs and expenses that would hit earnings but I dont believe much was made of any problems with gross revenue. Plus the litigation wild card has yet to be played. IBM will be a defendant and co-defendant in a lot of what goes to court and this is very expensive to fight and more expensive if you lose. It is another sleeping giant that once damages can be demonstrated (post Y2K quantification) then the lawsuits will follow. With no damages (no harm, no foul) a lot of this gets thrown out of court so why do it now, thats why there are only a few cases around the country. So I dont know the answer. It may be as simple as getting sucked down when the problem hits everyone else and the Dow gets cratered along with every other market. IBM is not immune here. Jules will rule at some point.