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April 11, 1988

ANALYSTS LOOK FOR 10% TO 15% PROFIT GAIN FOR IBM QUARTER; MORE COST CUTS?

By CBR Staff Writer

Despite the extent to which the company brought business forward into the 1987 fourth quarter to bolster year-end figures, analysts contacted by Reuters look for the company to announce first quarter profits up 10% to 15% compared with a very dull first quarter last year, when the company did only $1.30 a share: the consensus average this time is $1.45 to $1.50. The forecasts are on the belief that mainframe and personal computer sales were strong in the quarter. The real worry is that turnover overall is not expected to rise more than 5% to 6% – to perhaps $11,300m – in an overall market growing at a substantially higher rate: IBM’s traditional target is at least to match the rate of growth of the computer market as a whole. And if the company can’t grow turnover by more than 5% or so, analysts say, it may have to take further cost cutting measures to maintain a healthy increase in profits. Savings on the early retirement programme are estimated to be as high as $800m a year. What growth has occurred in the last couple of years has also substantially been down to favourable translation of foreign business into devalued dollars, and that effect has to work its way out of the figures quite soon unless the dollar takes another dive.

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