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IBM leads high-tech stock rally

Big Blue led a rally in high-tech stocks after its earnings exceeding expectations.

IBM's report this morning of higher-than-expected earnings is lifting the entire high-technology stock sector, pushing share prices up sharply.

IBM's net income in fact fell by 23.5 percent to $1.3 billion, or $2.51 per share, in the second quarter ended June 30. The company cited a sharp decline in prices for memory chips, along with fluctuating currency prices, as the reason for the drop.

But the good news was that the company's revenues jumped 4 percent, to $1.82 billion, compared to $1.7 billion a year ago. And even with the decline in income, the report still beat analysts' expectations for the quarter, a fact that pushed the company's shares up by nearly 10 percent in mid-afternoon trading. According to First Call, a service that tracks Wall Street financial estimates, the consensus among analysts was for second-quarter earnings of $2.44 per share.

Big Blue reported several other bright spots in the quarter, including an increase in the number of Lotus Notes developers' seats from 2.2 million to 6.3 million one year ago. Services revenue rose by 23 percent, according to the company. IBM's stock was up 11-7/8 by the close of market, or almost 13 percent, to 103-5/8 on the strength of the report.

In reaction similar to the response to Intel's strong quarterly report last week, tech stocks benefited from IBM's good fortunes. Microsoft, which saw its share price fall 6 percent Tuesday despite reporting a 52 percent increase in quarterly earnings, was up 3-3/4 to 118-1/2. Intel itself rose 3-1/8 to 72-1/8.

Despite losing an exclusive Web browser distribution deal with AT&T today, Netscape Communications climbed 5/8 points to 44-1/8. Compaq Computer, which Wednesday reported a 9 percent jump in second-quarter income, rose by 3-5/8 to 51-7/8. And Sun Microsystems was up by 2-1/2 points to 52-5/8.

Nevertheless, analysts caution that technology stocks may not be out of the woods yet, and many are warning investors that the market remains even more volatile than usual. A rising number of investors, wary of narrow profit margins and intensifying competition, are moving out of high-tech stocks in search of steadier ground.