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March 28, 1989

ANALYSTS CONFUSED AS IBM TRIES TO BACK-PEDDLE ON ITS WARNING ABOUT 1989 PROFITS

By CBR Staff Writer

Details of the main course at IBM’s big bash for analysts in Boston last Thursday didn’t arrive until long after we had closed for press, but the burden seems to have been that the top brass at IBM doesn’t really know where the market is going. Chairman John Akers was generally optimistic in his remarks, saying We estimate the information industry will grow two to three times faster than real worldwide gross national product growth, but that as Friday’s announcement indicates, we may see quarter to quarter aberrations. Overall, he says, IBM’s growth is keeping pace with the growth in the computer industry as a whole – and senior vice-president for finance Frank Metz said that IBM expects 10% or better growth in the industry worldwide in both 1989 and 1990 – but Akers noted that some US sectors – service, federal systems, copiers – were showing slowing or no growth. Metz said that IBM had not changed its demand expectation for the year: I do not see a demand problem in any of the main areas of the company’s business. Metz also made it clear that the chip problem on the 3090S machines was more serious than anyone had assumed: he said that production should be back at levels where IBM could meet demand by next quarter or possibly into the third quarter, which implies that second quarter figures are going to be below expectations as well as the first quarter, which everyone now knows will be weak to down. Adding that the manufacturing problem gave IBM much less flexibility to meet any upside demand, Metz said that IBM had seen no softening of demand in Europe below IBM’s expectations, although the short term effect of a strong dollar is not helpful. IBM expacts its Asian business to be very strong, Europe to be strong, and the US in third place in terms of strength of demand. But, said Metz, there will be sufficient growth in the US to support the company plan. And Akers seems to believe that IBM has got it about right, and that many of the other players in the computer market have got it wrong: asked about recent earnings disappointments at other computer companies, Akers said, I really don’t think the problem is the industry. I think the problem is with the individual participants. The market remained suspicious, however, and the shares put on only 25 cents to $109.50.

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