IBM disappoints analysts

2 min read

IBM (NYSE: IBM) will join the growing list of techs sliding on third quarter reports Wednesday, as analysts downgraded the stock on slowing sales figures.

The company met the Street estimate in its third quarter Tuesday, earning $2 billion, or $1.08 a share. However, the $21.8 billion in sales came in at the low end of most analysts' estimates.

Shares closed up 1.88 to 113 Tuesday. IBM's quarterly report is just the latest in a string of troubling news from PC makers.

The stock was downgraded to "hold" from "accumulate" by analyst Kimberly Alexy at Prudential Securities. The fourth quarter and fiscal year 2001 earnings estimates were cut to $1.39 a share and $4.84 a share from $1.46 a share and $5.03 a share, respectively. The price target was cut to $111 from $130.

IBM also got a downgrade -- to "market perform" from "strong buy" by analyst Philip C. Rueppel at Deutsche Banc Alex. Brown

Stephen C. Dube at Wasserstein Perella Securities downgraded it to "buy" from "strong buy" and put a 12-month target price of $130 a share on the stock.

Bear Stearns on Wednesday said analyst Andrew Neff was maintaining his "buy" rating and earnings estimates but had cut his 2000 and 2001 revenues.

Neff cut his revenue estimates from $90.3 billion to $87.8 billion for 2000 and from $98.8 billion to $95.2 billion for 2001. He maintained his earnings estimates of $4.45 per share in 2000 and $5 per share in 2001.

Revenues of $21.78 billion, up 3 percent from a year earlier, were $1 billion below Bear Stearns' expectations because of 3 factors: supply constraints on ceramic substrates, customer pause in front of the G7 mainframe launch, and problems closing software business in September.

However, Bear Stearns said IBM met expectations with better-than-expected operating expense control and the firm does see "several business positives going into 2001," such as positive trends in services backlog, mainframe product cycle, profits in PCs, and potential to fix areas of shortfall including UNIX servers and software.

"IBM should be able to show accelerating revenue growth in 2001 from services, mainframe, PCs, OEM Technology and UNIX servers," which together represent 80 to 90 percent of its revenues, Neff stated in a report. "But IBM will have to do better to get investors to believe that it can show sustainable revenue growth," he added.

Neff also said that with a pick-up in services signings in the second and third quarters, services revenue growth should accelerate. And improvement in PC profitability should give an uptick to earnings per share. IBM has a new mainframe product cycle coming, and HDD problems are being fixed.

With the potential for mainframe product transition issues to affect the fourth quarter, and the potential for aggressive pricing by PC vendors, IBM's near-term results can carry an element of surprise, he added.