IBM warns of price pressure despite rise

TOM STEVENSON

Deputy City Editor

A threefold increase in first half net income to $3bn at International Business Machines failed to excite Wall Street yesterday. IBM's shares fell $3.25 to $104 as the market focused on a warning from chairman and chief executive Louis Gerstner that prices remained under pressure in the US and European markets were still sluggish.

Sales, up 16 per cent to $33.3bn, were boosted by the weakness of the dollar but net income per share of $5.09 compared with $1.68 last year and was right at the top end of analysts' expectations.

One trader said: "It's a great number. Gross margins are way above expectations and currency helped." The movement in the shares, which unwound a $3 rise on Monday, was put down to profit-taking and nervousness in a range of high technology stocks following two recent downgrades of Microsoft profit forecasts.

Looking ahead, Mr Gerstner warned that IBM's profits had increased in all four quarters last year, making it increasingly difficult to post year-on-year rises in the second half of the year.

He said sales in North and South America and the Asia-Pacific region ranged from satisfactory to strong while turnover in Europe was disappointing.

The company said it continued to make progress in turning its PC business around. A company restructuring is due to end by the middle of next year.

Services revenues grew by more than 30 per cent to $3bn.