IBM slips 11% on warning

IBM yesterday issued a surprise earnings warning, its first in more than 10 years, causing an 11 per cent slide in its share price as hopes for a recovery in IT spending faded, and dragging down the Dow Jones and Nasdaq indices.

The world's biggest computer company said first-quarter revenues would be at least $1 billion (€1.4 billion) below analyst estimates. Earnings per share would be 66-70 US cents, compared with Wall Street estimates of 85 cents.

Big Blue's bombshell affected other technology companies as investors fled, despite optimism earlier this year that corporations would increase their information technology spending. "The business environment remains very tough," said Mr John Joyce, chief financial officer at IBM. "We saw a continued slowdown in customer-buying decisions in the first quarter."

Mr Joyce blamed some of the shortfall on continued weakness in IBM's technology group, which makes chips, hard drives and other computer components. He said this group's revenues would "decline by approximately 35 per cent in the quarter". This would result in a loss of about $200 million on a pre-tax basis or eight US cents a share accounting for at least half IBM's missed earnings.

Mr Joyce said Big Blue "remains committed to taking actions to improve our competitiveness". Some analysts said this could mean spinning out business groups such as the loss-making Technology Group and its PC business. Others disagreed. "IBM's problems are directly related to the poor economy," said Mr Tom Bittman, senior analyst at research company Gartner Group. "When the economy recovers so will IBM's orders; they just need to maintain their current strategy."

IBM's woes come on the heels of a change in senior management with Mr Sam Palmisano taking over as chief executive from Mr Louis Gerstner in March. "I don't think that Mr Palmisano was helped by Mr Gerstner portraying everything in such a positive light when he left," said Mr Bittman. - (Financial Times Service)