IBM profits warning sends shares down 10 per cent

An unexpected earnings warning from IBM, the world's number one computer maker, jolted Wall Street early yesterday hurting other technology stocks and raising questions about the strength of the nascent economic upturn.

Investors punished IBM, which saw its stock close down 10.1 per cent at $87.41 in New York. Some analysts, however, saw excessive accounting caution, in the wake of the Enron scandal, as possibly the main reason for the warning.

Nonetheless, it was the first earnings warning issued by the computer colossus for more than a decade and the psychological impact was significant. Other technology companies hurt yesterday included EDS, Accenture and Computer Sciences Corp. The Dow Jones industrial average was initially dragged down by the news, but was down only 22.50 at 10,249 by the closing bell.

The company's chief financial officer, John Joyce, cited a "very tough" business environment, exacerbated by the traditionally weak first-quarter technology sales. "We saw a continued slowdown in customer buying decisions in the first quarter," Joyce said, noting that customers, "chose to reduce or defer capital spending decisions until they see a sustained improvement in their businesses".

IBM said it expects to earn 66 cents to 70 cents per share for the quarter ­ down 12 per cent ­ compared with the 85 cents per share expected by Wall Street. The company earned 98 cents per share in the first quarter of 2001. Revenues in the quarter are expected to be in the range of $18.4bn to $18.6bn compared with $21.0bn in the first quarter of last year, IBM reported.

The warning caught many anaylysts by surprise. UBS Warburg analyst Don Young issued a glowing report that emerged just minutes before IBM's earnings warning. On the basis of its strides in the market for computer network servers, Mr Young termed IBM stock a "strong buy".

The credit rating agency Standard & Poor's said it did not expect the current revenue weakness at IBM to have an impact on its rating or outlook.