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IBM stock tumbles
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October 21, 1999: 5:45 p.m. ET
Computer maker hard-hit after profit warning tied to Y2K problems
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NEW YORK (CNNfn) - IBM stock tumbled Thursday -- pulling the rest of the market with it -- after the world's biggest computer maker warned profits for the next two quarters will fall short of analysts' forecasts due to Year 2000 bug-related issues.
Shares of Dow component IBM (IBM) sank 15-5/8, more than 14 percent, to close at 91-3/8, on the New York Stock Exchange.
After the market closed Wednesday, International Business Machines Corp. reported that Y2K issues will prevent it from meeting Wall Street's forecasts of $1.33 a share for its fourth quarter. It also said it expects first-quarter 2000 earnings to miss consensus estimates.
Many large corporations are hesitant to commit to large-scale technology purchases until they are confident that their Y2K-remediation programs are complete.
Big Blue's bad news shook Wall Street in early trading, prompting the Dow industrials to sink 184 points in morning trade and the tech-heavy Nasdaq composite to drop more than 50 points.
"The cat's out of the bag here with IBM," said Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum. "It's going to affect more than IBM, because Y2K is a concern and it's going to affect many different sectors of the market. And analysts have already switched from just looking at earnings to quality of earnings."
Prior to Wednesday's announcement, IBM had told analysts that its business would not be affected by Y2K concerns. But the company's warning has investors spooked about the prospects of other big companies in the technology sector.
Sun Microsystems Inc. (SUNW), which competes with IBM in the computer server market, plunged 3-7/16 to 92-7/8 on the Nasdaq stock market.
Fellow Dow component Hewlett-Packard Co. (HWP) lost 1-9/16 to 75.
Several analysts cut their ratings and forecasts for IBM following the company's warning. Lehman Brothers downgraded its rating on IBM's stock to "outperform" from "buy."
Merrill Lynch cut its rating to "near-term neutral" from "near-term buy."
Morgan Stanley Dean Witter downgraded its rating to "neutral" from "outperform." The brokerage also cut its 2000 earnings estimates to $4.53 a share from $4.66.
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IBM
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