IBM's profits fall

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IBM's first-quarter results will fall far short of analysts' expectations, the company said on Monday, pointing to "a continued slowdown in customer buying decisions." The company said it expects to post a profit of between 66 cents per share and 70 cents per share, or between $1.65bn and $1.75bn, with revenue coming in at between $18.4bn and $18.6bn. Analysts were expecting Big Blue to post a first-quarter profit of 85 cents per share on revenue of $19.65bn, according to First Call. In the year-ago quarter, IBM reported a profit of 98 cents per share on sales of $21bn. IBM's profit warning is notable for a few reasons. For starters, profit warnings from Big Blue are rare. The company last issued a profit warning in 1991, according to a company representative. IBM's warning also has an effect on the entire technology sector. In 2001, Wall Street had largely viewed IBM as a safe haven in technology because the company posted strong financial results even as rivals stumbled. With IBM's warning, investors were skittish about much of the tech sector. In early trading, IBM shares were down $9.75 to $87.50, or 10 percent, dragging down the Dow Jones industrial average and the Nasdaq. The CNET Technology indices were also down across the board. The warning also marks a rough start for chief executive Sam Palmisano, who took over the top spot last month, replacing Lou Gerstner, who had been chief executive since 1993. Merrill Lynch analyst Steven Milunovich said in a research note that Palmisano may have decided to reset estimates as a buffer for future quarters. "It is not clear to us as to whether the business is getting that much worse or this announcement reflects the inclinations of the new chief executive," said Milunovich. Milunovich noted that IBM is likely to cut its earnings targets for future quarters. According to First Call, IBM is expected to report 2002 earnings of $4.76 a share. IBM said in January that it was "comfortable" with analysts' expectations, but cautioned then that business conditions would be difficult. Chief financial officer John Joyce said IBM "saw across-the-board weakness in revenues in the first quarter, particularly in our OEM technology business." Revenue from IBM's Technology Group, which includes its semiconductor and OEM businesses, will be down 35 percent and will lose around $200m, or 8 cents per share, for the quarter. IBM formally reports results for the quarter 17 April. IBM's stock has suffered recently as investors questioned some of the company's accounting. It was recently reported that the Securities and Exchange Commission had requested that the company amend its 1999 annual report and its first-quarter 2000 report. The matter was resolved without having to amend the reports.
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