The hi-tech sector is bracing itself for bad news, with IBM expected to report its first earnings drop in two years later today.
The First Call consensus of Wall Street analysts predicts earnings per share of $1.05, nine per cent down on last year's first quarter.
The dip will be no surprise - IBM made a profits warning as far back as January - but will add to the jitters already being felt by the technology market in the wake of the Asian currency crisis and disappointing results from normally strong performers such as Compaq.
IBM's figures reflect several trends that are affecting suppliers across the board, notably the Asian economic upheavals, the strong US dollar, and a glut of PCs worldwide. This build-up of inventory has forced price cuts and caused problems for most major PC makers, notably Compaq.
IBM itself was keen to point to short term factors rather than dwelling on such trends. In a conference call on Friday it said it had faced several one-time expenses, including acquisition costs and a massive marketing drive at the Nagano Winter Olympics, which had impacted results.
Analysts said that, if IBM manages to outdo forecasts, it will be through cost cutting rather than unexpected revenue growth. They added that achieving healthy revenue increases must be the main goal for chief executive Lou Gerstner and his team, now that he has returned the giant to sustainable profits and restructured its organisation.
IBM is not alone in relying on cuts rather than organic growth to limit damage this quarter. Companies that have pleased Wall Street this quarter, such as Digital Equipment, have done so almost entirely through efficiencies rather than top line improvements.
In a recent report on IBM by Salomon Brothers, technology watcher John Jones wrote that there are many areas of strength, but these have been overshadowed by currency fluctuations and the weak Asia-Pacific market. He particularly points to services, software, and PC and Unix servers as potential growth lines for the quarters ahead.
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