IBM Warns of Sharp Downturn in Q1 Revenues, EPS

The warning--the first in more than a decade for the Armonk, N.Y.-based company--quickly sent waves of selling in equity markets around the world as the U.K. and European stock exchanges fell sharply.

IBM shares opened down almost 10 percent in heavy volume. It was trading off $9.25, at $88, after closing Friday on the New York Stock Exchange at $97.25. In the first 30 minutes of trading, over 6 million IBM shares traded hands.

IBM, the No. 1 computer maker, last issued an earnings warning in June 1991. Even though there have been rumors in the last several quarters that IBM would warn, the latest coming on Friday, the announcement still caught the market unawares.

The warning comes only a month after CEO Samuel Palmisano took the reins of the company from long-time head Louis Gerstner, who remains chairman until the end of 2002. It also comes on the back of increased scrutiny of IBM's accounting, which investors have said doesn't provide enough information.

Gary Helmig, an analyst for Soundview Technologies, says the issue is one of corporate technology spending being off across the board rather than IBM losing ground.

"We have no reason to believe they are not continuing to gain share," Helmig says. "We think it's a demand issue, a wide demand issue."

Tech Slowdown

The company attributed the shortfall in part to its technology group, which makes items such as microchips for other companies. It says it expects that group's revenue to fall 35 percent, hitting its profit by $200 million before taxes, or 8 cents per share.

IBM says it expects first-quarter revenue in the range of $18.4 billion to $18.6 billion, compared with $21 billion a year ago. That will translate into earnings per share of 66 cents to 70 cents per share down from 98 cents per share in first quarter of 2001.

Prior to the warning, the consensus among financial analysts was for the company to post earnings per share in the range of 80 cents to 88 cents, with a mean estimate of 85 cents, according to Thomson Financial/First Call. Revenue estimates ranged from $19.3 billion to $20.8 billion.

Copyright 2002 Reuters Limited. All rights reserved.

Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters.

Reuters shall be not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.