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Dark skies will remain, says IBM

Big Blue sees black days ahead for the IT industry.

  • John Geralds in Silicon Valley
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IBM dashed any hopes that the hi-tech downturn was ending by saying that it expects business in the next few months to deteriorate.

The company said its second half was at risk of giving way to some broader economic factors, and that its chip making business would fall off dramatically making it more difficult to offset the effects the strong dollar will have on profits.

Chairman and chief executive Louis Gerstner said that slow spots in the second quarter included PCs, hard disk drives and microelectronics, and that the three would continue to hurt the company in the coming months.

"We were not immune from some of the problems that affected many of our competitors in the second quarter," said Gerstner. "We expect that these factors will continue to work against us in the second half of the year. Additionally, we are now seeing signs of slowing in our microelectronics business."

Chief financial officer John Joyce said that PC sales were particularly weak. Revenues were down 14 per cent at constant currency and hard disk drives were down two per cent. "We have work to do in PCs and hard disk drives," he said.

During a conference call, Joyce reiterated that the company's microelectronics business is troubled by some $250m worth of excess inventory with buyers. He explained that this could result in a 15 to 20 per cent falloff in that portion of the business during the third quarter.

"Currency would hurt third-quarter growth by about five points - a point more than April rates would have suggested," he said. "In the fourth quarter, we could be hurt by three to four points, which is also a point more."

"We expect to be one of the very, very few IT companies to grow revenue and earnings per share in 2001," he added.

IBM managed to meet analysts' profit estimates of $1.15 earnings per share for the quarter. Total revenue was $21.6bn, which marked a slight decline from the year-ago quarter when the company reported sales of $21.7bn.

Big Blue reported $2bn in net income for the second quarter, a five per cent increase from $1.9bn in the same period a year earlier.

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