IBM blamed the Year 2000 (Y2K) problem for a slowdown in sales to its biggest customers toward the end of its third fiscal quarter, particularly from its large server business.
And the company further spooked investors by saying that it expected sales to deteriorate more in the fourth quarter, predicting that profits would be down about five per cent from last year's $2.3 billion. Analysts had been expecting a profits increase.
Dan Niles, an analyst at BancBoston Robertson Stephens, said: "It's a disaster. IBM told us three months ago that Y2K isn't going to have any effect on it at all. It misses this quarter, now it's saying the next quarter is going to be even worse and that the first quarter will have even more losses."
The forecast sent Big Blue's share price tumbling in after hours trading, hitting a low of $99. Its stock had traded as high as $139.18 earlier this year.
For the third quarter, IBM's total sales rose five per cent to $21.1 billion. Hardware revenue dropped one per cent to $8.8 billion compared with the same quarter last year. The firm turned in a profit of $1.8 billion, after a one time gain of $63 million, up from $1.5 billion in the year ago quarter.
While the results were in line with industry estimates, they were in stark contrast to Microsoft's figures yesterday, which claimed it had not been hit by any Y2K fallout.
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