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Goldman reins in IBM, Sun estimates
Enterprise hardware stocks top list of list of estimate changes; IT lagging economic recovery.
April 2, 2002: 12:37 PM EST

NEW YORK (CNN/Money) - Goldman Sachs on Tuesday lowered its earnings estimates for a raft of enterprise hardware and software companies during the just-ended quarter.

Among those at the top of the list was blue-chip IBM. Goldman analyst Laura Conigliaro said that IBM (IBM: down $1.77 to $101.09, Research, Estimates), the world's largest supplier of computer hardware and information technology (IT) services, got off to a slow start in the quarter and was not able to make up the difference at the end.

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"While our checks suggest that there was a general pickup in hardware business at the end of the March quarter, this was probably not sufficient for IBM to make our original revenue forecasts," Conigliaro said in a research note.

Conigliaro cut her earnings estimates for IBM in 2002 to $4.65 per share from $4.75 per share, and lowered her 2003 earnings estimate to $5.30 from $5.40 per share.

IBM is set to report its latest quarterly results on April 17. General expectations on Wall Street are for the company to log a profit of 85 cents per share on roughly $2 billion in revenue.

Also on Goldman's list Tuesday was Sun Microsystems (SUNW: down $0.55 to $8.97, Research, Estimates), the leading supplier of UNIX servers, which are large computer systems used for everything from hosting Web sites to executing bank transactions.

"With Sun's March quarter now over, our sense is that, while Sun's quarter ended on a strong note, revenues were likely sequentially flattish, probably with the slight bias toward the downside," Conigliaro said.

For the March quarter, Conigliaro reined in her revenue estimate for Sun to $3.1 billion, but said she still expects the company to lose 2 cents per share. At the same time, she lowered her forward estimates on the company "to reflect a more muted recovery in IT spending."

In 2002, Conigliaro said she expects Sun to lose 10 cents per share, a penny more than her prior estimate. For 2003, she estimates earnings at 19 cents per share, down from a previous estimate of 23 cents per share.

Sun is expected to log is latest quarterly results on April 18, with most analysts expecting a loss of 2 cents per share on roughly $3.2 billion in revenue, by First Call's count.

Conigliaro also trimmed her estimates for EMC (EMC: down $0.46 to $11.74, Research, Estimates), the leading supplier of data-storage systems, saying the March quarter ended strongly but not enough to offset a weak start.

She put EMC's 2002 loss at 5 cents per share, down from a previous estimate of 3 cents per share. At the same time, she stood by her 2003 earnings estimate of 25 cents per share.

Meanwhile, Goldman analyst Rick Sherlund weighed in with estimate cuts on several enterprise software makers, including Microsoft.

Sherlund lowered his 2003 earnings estimate for Microsoft (MSFT: down $2.22 to $58.16, Research, Estimates) to $1.95 per share from $2.05 per share. However, the stock remains on the firm's closely watched "Recommended List."

"The macro economy in the U.S. is moving in the right direction, but it is taking longer to gain traction in the tech sector," Sherlund said. He attributed the less optimistic earnings outlook in part to an expected slower ramp-up in capital spending by IT departments, and in part to the expectation that Microsoft's costs will rise during the year as management moves to fund strategic initiatives.

Microsoft is expected to log its latest quarterly results on April 18. By First Call's count, most analysts expect a profit of 51 cents per share on $7.3 billion in revenue.

Sherlund also trimmed his earnings estimates for Siebel Systems (SEBL: down $3.01 to $31.19, Research, Estimates), saying he now expects the company to log a profit of 50 cents per share in 2002, where previously he had forecast a profit of 57 cents per share. For 2003, Sherlund trimmed his earnings estimate for Siebel to 65 cents per share from 75 cents per share.

"Despite overall strong macro data, a recovery in the tech sector is lagging well behind the overall U.S. economy," Sherlund said. Estimates in this sector are likely to come down as a result. We believe Siebel has likely made its first quarter numbers, but we have cut estimates for the rest of this year and 2003 to reflect a slower pace of recovery."

The firm also cut its estimates on enterprise software makers BroadVision (BVSN: down $0.25 to $1.47, Research, Estimates) -- following its earnings warning Monday evening -- and PeopleSoft (PSFT: down $11.00 to $26.37, Research, Estimates), which warned of a shortfall in its latest quarter early Tuesday morning.

Meanwhile, stocks in the broader technology sector were pressured after bucking a general downturn in the markets Monday.

At 12:10 p.m. ET, the Nasdaq composite index was 38.44 points lower at 1,824.18, a 2.06 percent decline.

Shares of AOL Time Warner (AOL: up $0.20 to $23.47, Research, Estimates) were among the few exceptions, holding on to modest gains in spite of a bearish call from Merrill Lynch.

Merrill on Tuesday cut its 2002 earnings estimates for the company, which owns CNN/Money, to 90 cents per share from 93 cents per share, and its 2003 per-share earnings estimate to $1.10 from $1.24.

The firm said it sees limited downside risk but also few near-term catalysts that might drive the stock higher.  Top of page