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Dell, IBM estimates cut
December 28, 2000: 1:22 p.m. ET

Prudential analyst cites sluggish sales of desktop PCs, laptops
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NEW YORK (CNNfn) - A Wall Street equity analyst lowered her revenue estimates on two of the leading names in the computer hardware segment Thursday, but the move drew a mixed reaction from investors.

Citing expectations of continued weakness in the PC market and especially soft demand for notebook computers, Prudential Securities analyst Kimberly Alexy reduced her revenue forecast for IBM (IBM: Research, Estimates) and Dell Computer (DELL: Research, Estimates).

The move weighed heavily on Dell, whose shares were down 44 cents, or 2.4 percent, in early afternoon Nasdaq trade Thursday. Meanwhile, IBM shares were hovering near Wednesday's close of $84.69.

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That disparity could be because Alexy's report merely reiterated what other Big Blue watchers have been saying for months -- that indications of sliding corporate information technology spending could hurt the company.

Last week, Merrill Lynch's Tom Kraemer downgraded his near-term rating on IBM's shares to "neutral" from "accumulate," saying he expects the company to continue to reduce its revenue growth projections moving into the new year. graphic

"Frankly, IBM is so large it is difficult for them to hide from an IT slowdown," A.G. Edwards & Sons analyst Shelby Seyrafi said Thursday.

IBM and Dell are two of the few technology companies that have not warned investors that lower-than-expected demand will cause them to miss their most recent quarterly financial projections.

Alexy said she believes IBM's fourth-quarter revenue will be hurt primarily because of weakness in its PC, hard disk-drive and software businesses.

She reduced her quarterly revenue estimate to $24.5 billion from $25.3 billion. However, she kept her earnings-per-share estimate for the quarter at $1.39, which is 7 cents below the mean of analysts' forecasts, according to First Call.

"IBM's notebook business, in particular, we believe was particularly hard hit as a result of the softened-demand conditions which surfaced mid-quarter," Alexy wrote in a research note.

As for Dell, Thursday's revenue forecast reduction represents the second time she has lowered estimates for the company this month.

graphicOn Dec. 4, she had lowered her top-line expectations to $8.38 billion from $8.75 billion, citing concerns about desktop and notebook unit volumes. Last week, she moved that down to $8.29 billion and lowered her earnings-per-share estimate for the period to 23 cents from 26 cents.

"Over the remainder of the month, it appears that PC server demand has also softened, causing us to further question our revenue-growth assumptions," Alexy said. "In addition, pricing pressures have intensified across the product line."

In the face of a maturing market for desktop and notebook computers, Dell recently has stepped up its efforts in the market for enterprise servers and storage products, more profitable areas which executives said will be their major thrust in the coming fiscal year.

Meanwhile, the broader computer hardware segment was mixed in afternoon trade Thursday. The Goldman Sachs computer hardware index was down a fraction of a point at 372.59.

-- Reuters contributed to this report graphic


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