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  1. Technology
October 8, 1991


By CBR Staff Writer

Analysts are getting nervous that although IBM Corp hasn’t issued a warning about its third quarter figures, as it did for the first two quarters, they will still turn out to be disappointing, Dow Jones & Co reports. Analysts were brought up firmly in the jam tomorrow school, so although the recovery in the US looks shaky and Germany and Japan look threatening, they are pinning their hopes on 1992, even though their projections for IBM’s earnings for next year are based only on as yet unsubstantiated assumptions. They say that IBM has been telling them that it hasn’t seen any improvement in its US domestic business, that Europe continues to weaken and that Japan remains soft. That’s similar to what the company said at the end of the second quarter, except that then it saw early signs of a pick-up in US personal computer sales. Demand for the company’s new ES/9000 Summit mainframes appears strong, but those profitable machines only began shipping in the last two weeks of the quarter – not long enough to offset poor sales of their predecessors. And a stronger dollar than was the case a year ago is expected to have a negative impact on third quarter earnings as well – depending on exchange rates, up to 60% of IBM’s business is generated overseas these days. As a result of all this, many analysts have lowered their forecasts for the quarter to the 25 to 30 cents range, down from 40 to 50 cents. On Tuesday last week, Merrill Lynch analyst Daniel Mandresh trimmed his earnings projection for the third quarter by a dime to 25 cents a share saying Our concern for revenues is largely overseas-related where local currency growth continues to moderate. The good news on the quarter, Mandresh said, is that we believe IBM continues to exceed plan on the people reduction side for which we expect the year-to-date total to rise to 20,000 compared with 17,000 at the half. Charges in the quarter could reach $200m pre-tax or 20 cents a share. He is going for $3.27 for the full year 1991. On turnover, most analysts interviewed by Dow Jones Professional Investor Report are looking for third quarter revenues to be slightly lower than the second quarter’s $14,700m – in the year-ago third quarter, revenues totalled $15,280m. But some analysts are looking for recovery to start as soon as the fourth quarter, based on assumptions of a strong product cycle and a recovering economy.

Usually strong

According to First Call, a unit of Thomson Financial Networks, analysts are generally expecting IBM to earn about $3 a share in the fourth quarter of 1991 and $9 a share next year. IBM earned $10.51 a share last year. The fourth quarter is usually strong, and analysts see earnings helped by the new mainframes and by customers rushing to spend unused corporate budget dollars. But next year’s estimates hinge on analysts’ assumptions of a strong mainframe product cycle as well as an improved economy. Prudential Securities Inc analyst Rick Martin says he’s confident of strong demand for IBM’s mainframes and mainframe disk drives. Half of IBM’s business is mainframe-related, and therefore we feel good about half of (IBM)’s business, he says. The economy, he adds, is crucial to the other half. But other analysts are sceptical of how strong the new product cycle will be. PaineWebber Inc analyst Stephen Smith says he’s already reduced his projection for 1992 to $8 a share from his previous estimate of $8.50 because of his concerns that the cycle just begun may prove short-lived. The results of his survey of computer buyers’ intentions, which Smith sent to clients last week, found that while plans for spending industry-wide improved this quarter from last, plans for spending on IBM products in particular declined. The survey was conducted before IBM’s September 11 announcement of additional mainframes, but Smith says that factor shouldn’t dilute the significance of his survey because those announcements were widely expected. Although IBM’s backlog to ship in the fourth quarter appears strong, he found that intentions to buy over the next 12 months slippe

d to a new low of 2.2 on his index, from 3.2 in June. His latest figure of 2.2 means only twice as many users intended to increase spending as those that planned to cut back. The third quarter figures are scheduled to be announced next Tuesday, October 15.

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