IBM profit rises, but computer sales fall; Company predicts drop in next two quarters; stock price declines; Technology


ARMONK, N.Y. -- International Business Machines Corp. said yesterday that third-quarter profit rose 6.3 percent and warned that earnings may fall for the next two quarters as companies delay purchases to address year 2000 issues.

Profit from operations climbed to $1.59 billion, or 84 cents a share, from the year-earlier $1.49 billion, or 78 cents. Sales for the three months that ended Sept. 30 rose 5.2 percent to $21.14 billion. Some analysts expected sales of as much as $21.6 billion.

IBM's shares dropped as much as 5.1 percent after the report. The company had lower computer sales and warned that it expects a slowdown in the fourth quarter that could push profit 15 cents to 20 cents below the year-earlier period's.

First-quarter earnings will be unchanged to slightly lower.

"It's not a good report. They missed on the hardware revenue badly," said Ulric Weil, an analyst at Friedman, Billings, Ramsey & Co., who rates IBM "buy."

IBM shares fell $5.75 to $107 in after-hours trading, after its earnings report, which was released after the close of trading in New York.

The stock has dropped about 15 percent in the past month, though it has gained about 20 percent this year.

"They have a much tougher hardware comparison," said George Elling, an analyst at Lehman Brothers, who rates IBM "buy."

The company said it has a backlog of $57 billion in services orders, and signed $9.2 billion in contracts during the third quarter.

IBM's software and services business benefited as the company sold more programs with its contracts to manage clients' computer systems. Software and services made up half of the company's revenue last year, compared with 43 percent for mainframes, servers, PCs and related computer hardware.

"There's been a recognition of the importance of software and services," said portfolio manager Bob Finch of Aeltus Investment Management, which owns almost 3 million shares of IBM.

A gain and charge in the recent quarter made net income $1.76 billion, or 93 cents a share. There were no gains or charges in the year-earlier period.

Pub Date: 10/21/99

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