Analysts Trim Projections for IBM
Some Wall Street analysts on Thursday lowered their estimates of International Business Machines’ earnings, leading the world’s largest seller of computers to repeat its restrained outlook for 1986.
IBM, in a response to the analysts’ actions, said recently implemented price cuts and other product announcements “will have some negative effect on our first-quarter revenue.” The company said there is not enough time remaining in the quarter for a larger volume of orders to offset the effect of the price reductions; also, a spokeswoman said, some customers may have been holding off on placing orders in anticipation of the product modifications and introductions.
Fourth Most Active on Big Board
Although most industry analysts and market researchers have predicted stronger sales this year than last in most segments of the $130-billion information industry, IBM has retained a less optimistic view. Computer makers gagged on excess inventory last year when sales failed to increase as much as in previous years, and layoffs and red ink were common among manufacturers of computers, components and accessories alike.
In its statement Thursday, IBM reminded investors that “for some months now, IBM has been indicating caution about 1986.” Its stock was the fourth most active on the New York Stock Exchange on Thursday, and, while the industrial average climbed to a record, IBM lost $2.375 a share to close at $155.875.
Daniel Mandresh, who follows IBM for Merrill Lynch, said he lowered his estimate of IBM’s earnings for the year to $12.25 a share from $12.50. The estimate still projects a 15% increase from 1985 per-share earnings.
Mandresh said he also reduced his long-term view of the stock to “above average” from a “buy” position. His opinion on the intermediate outlook, however, remains at “buy,” he said.
‘Erosion’ in Computer Segment
At Salomon Bros., analyst Matthew Meehan reduced his estimate of IBM earnings to $11.80 a share from $12.30. He also lowered his opinion to a “hold” from a “buy” and removed the company from his brokerage’s recommended list.
The two analysts cited “erosion” of the company’s mid-range computer business.
An IBM spokeswoman said the company “has been gratified” by customer response to its announcement earlier this month of upgraded versions of its 4381 model processors, the smallest of its mainframes. At the same time, to become more competitive with other mainframe makers such as Digital Equipment and Data General, IBM lowered the price on its most powerful mainframe, the 3090 model, and introduced an upgraded 3090.
IBM, which has sounded its cautionary note at least four times since June, said Thursday that “there has been an absence of evidence of improvement in the U.S. economy, particularly with respect to capital equipment buying patterns as we perceive them. In fact, our current forecast for 1986 is for producers’ durable equipment expenditures to grow somewhat more slowly than last year.”
Stephen Cohen, an analyst with Boston-based Gartner Group, agreed. “It could be a difficult year unless demand accelerates from large users,” he said. “And there’s no indication demand will accelerate. The growth levels will be about the same as in 1985.”
Cohen said that, last week, following the company’s announcement of price reductions, he lowered his earnings estimates for IBM to $11.50 a share from $11.75.
