RealTime IT News

IBM Warns of Sharp Earnings Drop

By Erin Joyce

Shares of International Business Machines dropped by 10 percent during morning trading after the computing bellwether announced a sharp drop in expected earnings for the first quarter of 2002.

The company blamed a continued slowdown in tech spending by corporate clients for first quarter revenue that it expected in the range of between $18.4 billion to $18.6 billion, compared to $21 billion during the same time a year ago. During the fourth quarter, revenues were $22.8 billion, down 11 percent from the same, year-ago quarter and below Wall Street's expectations. But the company managed to hit its EPS targets.

For the first quarter of this year, however, earnings per share are expected in the range of 66 to 70 cents, down from the 98 cents per share it declared during the same first quarter a year ago. Analysts polled had been expecting earnings around 85 cents, according to First Call/Thomson Financial.

The warning shocked Wall Street, which has gone about a decade without any major warnings about earnings from IBM. Shares slid by 9.71 percent to $87.50 during Monday's early going, after dropping by just over 8 percent in pre-market trading soon after the warning was announced.

John R. Joyce, IBM's senior vice president and chief financial officer, said in a statement that, as he stated in January, the business environment remains very tough, with a continued slowdown in customer buying decisions in the first quarter.

"The first quarter traditionally is the weakest period of the year for technology purchases, and many of our customers chose to reduce or defer capital spending decisions until they see a sustained improvement in their businesses," Joyce said.

"As a result, we saw across-the-board weakness in revenues in the first quarter, particularly in our OEM technology business. We expect that our technology group revenues will decline by approximately 35 percent in the quarter and that this business will lose approximately $200 million on a pre-tax basis, or 8 cents per share, in the quarter."

He said despite the difficult environment, the company believes its strategies remain the right ones for the industry.

The warning also slugged shares of other major hardware, PC and software makers. Chip bellwether Intel Corp. fell by 3 percent to $29.23; Sun Microsystems slipped by 43 cents to $8.27; Gateway fell 16 cents to $5.81 and Microsoft Corp. shed $1.16, or about 2 percent, to $54.70 during mid-morning trading Monday.

Shares of IBM were under pressure on Friday after the company confirmed in a wire service report that it would lay off 600 staff from its global services division, which counts about 150,000 staffers worldwide; chatter about a possible earnings warning drove the price down by 3.5 percent to close at $97.25 Friday.

The warnings reflect the continued weakness in sales of PCs and in OEM technology including hard disk drives and microchips. In addition, IBM's last quarterly and year-end 2001 results showed continued pressure in consulting and system integration services contracts.

IBM plans to report its first quarter results on April 17.