IBM Trims Profit Projection; Stock Tumbles on News
International Business Machines surprised Wall Street on Friday by announcing that profit in the current quarter will be lower than expected due to a shortage of chips that has delayed shipments of its largest computer model.
Although IBM insisted that the chip problem has been resolved, it acknowledged that fallout from the shortage would make it more difficult for the company to match the most ambitious profit levels that industry analysts have projected for the full year.
Investors, already nervous about a possible showdown in high technology sales, sent IBM shares sliding $5.625 cents per share to close at $112.50.
Analysts said the IBM’s stock tumble--the equivalent of nearly 5% of its value--was one factor in the 48.57-point drop in the Dow Jones index. The drop was also blamed on investor fears about a big increase announced Friday in the producer price index.
IBM is one of the 30 industrial companies included in the industrial index, and due to the way the index is calculated a $5.625 drop in IBM’s price translates into an 8-point drop in the Dow.
In its terse announcement, IBM said earnings for the quarter ending March 31 would be below the levels that Wall Street analysts have been predicting.
The company gave no specifics on what its profit might be, but one analyst said the forecasts ran from a low of $1.65 to $2.15 per share for the quarter. The high end of the annual profit forecast is about $11.90, another analyst said. Last year, IBM earned $2.10 per share in the first quarter (including 53 cents for a one-time gain) and $9.80 per share for all of 1988.
In a separate announcement, the company said it was increasing prices for most of its products and services in the United States by nearly 5%, effective immediately. However, among the products excluded from the 5% price increase are PS-2 personal computers and related software, some of which have not been selling as quickly as IBM had hoped.
Weak Sales Feared
Although analysts were clearly stunned by the announcement of lower than anticipated profit, they said their deepest fears were somewhat stilled by the price increase news, since it tended to indicate that IBM felt demand for its products was high enough to offset the price hikes.
In fact, most analysts said they believed the IBM explanation that the chip shortage was a one-time “blip” that has been corrected. “Although the market for computers as a whole is not as robust as we would like to see it, we don’t see any softness in the market,” said John Jones, a technology analyst for Montgomery Securities in San Francisco.
But there were some doubters who expressed fears that demand for IBM’s biggest computers, which account for the largest single portion of its sales and earnings, may be weaker than they previously thought.
