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September 1, 1988

AMDAHL SHARES TAKE A TUMBLE ON EARNINGS OUTLOOK, BUT MANY ANALYSTS SAY IT’s OVERDONE

By CBR Staff Writer

Amdahl Corp shares took a purler Wednesday, plunging $5 to $40 on the American Stock Exchange after S G Warburg’s David Wu and Gartner Securities’ Stephen Cohen lowered their estimates for the company’s 1988 outturn. Wu changed his recommendation on the stock to a hold from a buy, and cut his forecast for 1988 to $4 a share from $4.20, and for 1989 to $4.90 from $5.20, saying that he expected a slowdown in orders for the company’s IBM compatible mainframes. But several other analysts insisted that investors over-reacted to the bearish views, and insisted that the mainframe maker should rebound strongly in the fourth quarter. Kidder Peabody analyst William Easterbrook confirmed that Amdahl is warning analysts that foreign sales, representing about 44% of the total in 1987, will be weak – but should still be slightly higher in 1988, he said. Amdahl has told analysts to expect third-quarter earnings to be about $1.00 a share, similar to the second quarter and up from the year-earlier figure of 71 cents. Easterbrook described Wednesday’s plunge as a gross over-reaction. As far as I’m concerned, this is a momentary pause for Amdahl, he added. Europe is always slow in the summertime, said Jay Stephens, analyst with Dean Witter, but no one expected it to affect earnings that much. Jeff Canin, an analyst with Hambrecht & Quist, said that despite the weakness in Europe, business was still strong in the US. Amdahl is beginning to ship its top-performance 5990 mainframe, and should continue to benefit from the new product in the coming quarter, Easterbrook said. It also is expected to announce a response to IBM’s Enterprise Systems Architecture shortly. And another potential plus is the gestating agreement for Fujitsu Ltd, Amdahl’s 44.7% shareholder, to market some Amdahl machine models in Japan, because there is a hiatus in the IBM compatibility of its own top-end M-780 mainframes.

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