IBM Warns Of 1Q Shortfall

IBM Technology Group

In a statement, the company said it now expects its first-quarter profit to be in the range of 66 cents to 70 cents per share, down from the anticipated 85 cents per share Wall Street had been projecting.

"As I said during our last analyst call in January, the business environment remains very tough," IBM's CFO, John Joyce, said in a statement. "We saw 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."

Wall Street also had an average estimate of $19.7 billion for IBM's first-quarter revenue -- a number the Armonk, N.Y.-based company said it would also fail to meet. The company said it expects sales of between $18.4 billion and $18.6 billion.

Specifically, IBM said its Technology Group -- which includes IBM Microelectronics as well as other component makers -- would turn in a $200 million loss for the quarter.

The warning, ahead of IBM's expected April 17 earnings report, seemed to leave some Wall Street analysts befuddled.

"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 CEO [Samuel Palmisano," wrote Merrill Lynch analyst Steven Milunovich in a note to investors. "We believe that management may be inclined to set the earnings expectations lower going forward."

Milunovich said his firm would maintain an intermediate-term "Neutral" and long-term "Buy" rating on IBM stock.

Shares of IBM dropped $9.25 per share on the news, to $88 on the New York Stock Exchange.