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this is the whole new:
IBM watchers await financial results, focus on Y2K
By Eric Auchard
NEW YORK, April 21 (Reuters) - IBM <IBM.N>, the world's largest computer maker, has seen its stock sag as investors mull the potential impact of a Year 2000-related computer capital spending slowdown later this year. The Armonk, N.Y.-based company's first-quarter results, due out after the close of stock market trading Wednesday afternoon, may shed little light on such concerns, even if IBM manages to surpass all the standard financial measures.
While Wall Street projects International Business Machines Corp.'s first quarter to show a healthy 33-percent rise in earnings per share, the stock is 10 percent lower this year on fears IBM customers will suspend new computer purchases while they repair glitches in existing systems.
The uncertainty has has weighed on IBM's shares, which hit a record high of $199 in January. Such jitters, reflected in the stock's gyrations since then, have pushed IBM down to $167.50, or $2.25 lower on the day, in composite U.S. market activity Wednesday.
"The big issue for all of these computer systems stocks is that people don't know what to expect towards the end of the year and it's causing them to sell off," securities analyst John Jones of brokerage Salomon Smith Barney said.
Bill Milton, an analyst with Brown Brother Harriman, said, "What remains a question is if the company has doubts about the second half of 1999."
Yet IBM's industry peers have so far supplied little evidence to support such fears, despite the cloud cast by the poor results at rival Compaq Computer Corp.'s <CPQ.N> -- which were signaled months ago -- and reported earlier on Wednesday.
Jones noted how, in recent weeks, quarterly results of most other key players have met or exceeded Wall Street expectations, including results from Microsoft Corp. <MSFT.O>, Intel Corp. <INTC.O>, Unisys Corp. <UIS.N> and Sun Microsystems Inc. <SUNW.O>
On balance, these IBM rivals have acknowledged setting conservative business goals for later this year, with Microsoft reiterating in its quarterly report Tuesday that corporate spending "lockdowns" could hurt its December quarter results.
IBM's first-quarter results actually benefit from such fear of the future if IBM customers react by accelerating purchases ahead of spending deadlines -- which Unisys said was the case when they reported strong first quarter computer sales last week.
"If IBM performs the way most other companies have been doing, it has the potential for earnings per share to be 5 (cents) to 10 cents higher" than the consensus analysts' expectation of $1.41 per share for the first quarter, he said.
Analysts' estimates vary from $1.33 on the low-end to $1.44 at the top, according to First Call Inc., which surveys broker estimates. Revenues of around $19 billion, up 8 percent from a year ago, are forecast for IBM during the latest quarter.
Statistically, investors have history to comfort them. IBM has beaten Wall Street's quarterly earnings consensus by 1 cent to 4 cents per share in each of the last 11 quarters, according to Chuck Hill, director of research at First Call.
SoundView Technology Group analyt Gary Helmig said first-quarter results will benefit from easy comparisons with a year-ago, when IBM stuffed into operating results the costs of two acquisitions and $75 million in Olympics marketing costs.
Translating overseas revenues into U.S. dollars for reporting purposes is likely to contribute at least 4 cents of the consensus $1.41 estimate, several analysts said.
"It could be the basis for an upside," Helmig said, using traders' terminology for earnings above analysts forecast.
Computer consulting and technical services, which now account for a third of IBM revenues, is expected to chug along at a rate of better than 20 percent annual growth, but may struggle to get there against strong year-ago comparisons.
The fate of IBM's quarter lies in how its computer hardware businesses perform. "If there is a problem in the business, it's in the hardware, which is about 40 percent of the total mix" of revenues, Milton said.
In mainframe computer sales, market leader IBM's aggressive bid to take market share from No. 2 competitor Hitachi Ltd.<6501.T> could dampen revenue comparisons versus a year-ago, but then yield future benefits from sales of follow-on products to new corporate customers lured away from Hitachi machines.
The company's growing business selling technology components like hard disk drives to other computer makers are expected to be a positive, Helmig said. IBM's microelectronic circuits business will recover some as pricing has rebounded for products like the computer memory chips it produces, he said.
While Compaq is blaming tough personal computer industry conditions for a massive profit shortfall in its results -- also due out Wednesday -- PCs are expected to act as a potential accelerator to IBM results.
The expected growth in IBM's PC business this year will come mostly from the easy comparisons it faces compared to a horrible 1998 first half, when a backlog of unsold inventory stiffled PC shipments and caused profits to hemorrhage.
"PCs, which represent almost 40 percent of (IBM's) hardware revenue, are expected to be grow 25 percent year over year in the March quarter," wrote John Jones, a securities analyst with Salomon Smith Barney, in a recent note to investors.
In a bid to defend its hold over big corporate computer spenders, IBM has slashed prices on office desktop computers in order to fend off aggressive moves by Dell Computer Corp.<DELL.O> to gain share among such businesses last quarter.
((-- Eric Auchard, New York newsdesk, 212-859-1840))
REUTERS
Rtr 12:35 04-21-99
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