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IBM leads tech stock charge

IBM grabs Wall Street's attention after reporting better-than-expected earnings and earning boosted ratings from analysts.

Shares of IBM (IBM) jumped ahead nearly 8 percent today, but failed to propel the technology-laden Nasdaq to great heights or move the Dow forward.

IBM closed at 153-5/8 today, up 11-1/4 over yesterday. The stock, which had been inching up all month prior to its earnings announcement, rose as high as 157 in morning trading.

Moreover, IBM's earnings have put a charge into the sluggish technology sector. The Dow was up 41 points this morning at 6854 while advances led declines by 11 to 5. Nasdaq is in its second day of gains, up 14 at one point this morning following a 15-point gain prior to IBM's announcement yesterday.

Meanwhile, the Nasdaq composite index gained 0.96 points to close today at 1,228.10, a far cry from the 14-point jump the index saw in morning trading. The Dow Jones Industrial Average, meanwhile, was down 20.47 points to close at 6792.25 today.

Computer makers, however, were among the top gainers today at the market's close. Compaq Computer (CPQ) gained 2-5/8 to 80-1/8; Dell Computer (DELL) was up 1-7/8 to 81-1/4; Gateway 2000 (GATE) gained 2-1/2 to 58-3/8. Other technology stocks gained as well: Micron Electronics (MUEI) was up 1-11/32 to 20-1/2; Sun Microsystems (SUNW) gained 1 to 28-1/8; Oracle (ORCL) gained 1-3/4 to 39-1/2; AMD (AMD) gained 4 to 41-1/2.

Analysts have peppered Big Blue with ratings changes after IBM's slight increase in first-quarter revenues and virtually flat earnings as a strong dollar overseas and product transitions knocked its results.

Prudential Securities analyst Don Young raised his rating to "buy" from "hold." The analyst set a 12-month target price of $190.

Steven Milunovich, an analyst with Morgan Stanley, upped his 1997 earnings estimate to $12.50 a share from $12.30, and Merrill Lynch upgraded IBM to "buy" from "neutral."

However, Bear Stearns analyst Andy Neff cut his 1997 earnings per share estimate to $12.25 from $12.75, citing a strong dollar as the driving factor of his change. He also shrunk his 1998 earnings per share estimate, but maintained his "attractive" rating for the stock. Gruntal & Company downgraded the computer maker to "outperform long-term" from "outperform."

Big Blue reported net profits of $1.19 billion, or $2.37 a share, for the period ending March 31, compared with profits of $774 million or $1.41 a share a year earlier. During the quarter last year, IBM would have posted net income of $1.2 billion, or $2.21 a share, excluding acquisition charges.

Despite earlier rumors it would not meet analysts' expectations, IBM beat Wall Street expectations that said the company would post earnings of $2.28 a share, according First Call.

IBM, which reported after the market's close, posted revenues of $17.3 billion for the quarter, up 5 percent from $16.6 billion a year ago.

The company said its revenues was hit by a strong dollar in Europe and a product transition.

Gary Helmig, an analyst with SoundView Financial in Stamford, Connecticut, had predicted Big Blue would take a currency hit during the quarter. Multinational companies like Digital Equipment (DEC), Xerox (XRX), and others with large overseas operations saw their earnings hurt by the stronger dollar.

A strong dollar means revenues earned in foreign countries are worth less when they are exchanged back in to U.S. dollars. Analysts had predicted IBM's earnings could take a hit of about 20 cents a share.

Customers waiting for Big Blue's product upgrade also affected sales, the company said. IBM's server business, especially in its System/390 division, was affected.

IBM's services business, however, grew 28 percent in the quarter to $4.1 billion, up from a year ago when it was part of the company's sales and services group.

The company last March created a separate global services business group, which is fueling growth. The services group designs, installs, and services computers and systems.

Meanwhile, IBM's hardware sales were essentially flat at $7.8 billion over a year ago, as its RS/6000, AS/400, and System/390 sales declined. Personal computer and PC server sales, however, climbed along with the company's storage business.

Software sales fell 3 percent to $2.9 billion over last year, while maintenance revenues dropped by 8 percent in the quarter as well. IBM's gross margin declined to 38.1 percent in the quarter, compared with 40.9 percent a year ago.

Reuters contributed to this report.