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All eyes on IBM earnings

No surprises are expected when Big Blue reports quarterly earnings later today--a normal quarter would be a tonic for the frazzled PC industry.

IBM earnings, which will come out later today, are expected to be on track with no major surprises.

IBM is expected to report first-quarter earnings per share of $1.41, according to First Call. Estimates range from $1.33 to $1.44. Last year, IBM reported earnings per share of $1.06 for the quarter.

One sore spot, personal computers, is expected to show some improvement, coming after IBM said it lost close to $1 billion in 1998 in this area. "PCs lost money in the first half of 1998 and made money in the second half," said Steven Milunovich, an analyst at Merrill Lynch.

A normal quarter for IBM will be a tonic for the industry, which has experienced a debate recently over the health of the PC industry. Compaq executives, as well as some analysts and executives from other companies have said sales slowed in the first quarter, especially sales to large corporate customers. Price declines, moreover, have eroded revenue gains.

On the other hand, a number of analysts have said that the decline in sales is largely a seasonal issue and that the growth in the number of PCs shipped in a year-to-year comparison remains at between 11 to 14 percent. Nonetheless, price declines have dented the effect of this growth, according to, among others, Richard Gardner of Salomon Smith Barney.

Another source who tracks IBM said Big Blue's PC business was "on track," though the source was cautious about IBM's revenue prospects for its mainframes, its RS/6000 servers and workstations, and its AS/400 business computers.

Interestingly, executives at Dell Computer and some analysts have said that IBM has become increasingly aggressive in PC pricing.

Merrill Lynch expects to see continued improvement throughout 1999 in IBM's "technology" business which sells components such as hard drives, memory, specialized ASIC chips, and liquid crystal displays. IBM last month signed multi-billion dollar deals with storage giant EMC and Dell Computer to supply components and subsystems.

Merrill Lynch believes continued growth in hard-drive sales will offset plummeting memory chip sales. An IBM executive said recently that that they are pulling out of the DRAM memory business.

Services will continue to do well. Services remains IBM's "growth driver," said an industry source who doesn't expect the first quarter growth to "be markedly different" from its traditional rate of about 20 percent. Also, Merrill Lynch said it too expects services to be in that range through 1999.