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May 8, 1988

AMDAHL WARNS THAT IBM PRICE CUTS WILL LIKELY CRIMP PROFITS GROWTH

By CBR Staff Writer

Despite its giantkilling new product line-up, investors shouldn’t look for an indefinite continuation of record profits growth from Amdahl Corp, chairman John Lewis told the company’s annual meeting last week. He sees IBM driving prices down in the top end mainframe arena, and warns that this will lead to a slowdown in the rate of growth of Amdahl’s profits. The company reported a soaring 71% increase in net profit at $43.2m in the first quarter, on sales that rose only 15% to $367.7m. And that followed a 1987 in which profits soared 249% to $146m on sales up 59% to $1,500m. That’s hard to keep up, Lewis told the meeting: We expect some price reductions to occur this year as IBM introduces new products. Nevertheless the new processor and new disks will do Amdahl no harm at all, and it is on its way to becoming a $2,000m a year company, perhaps as soon as this year. And, as they no doubt observe grimly in Armonk, that’s $2,000m of business that IBM could have expected to keep for itself were Amdahl not in the market.

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