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IBM off 2% on dollar woes
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June 16, 1998: 4:35 p.m. ET
Stronger currency seen chipping away at Big Blue's profits from Asia
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NEW YORK (CNNfn) - IBM Corp.'s stock slumped Tuesday after Wall Street raised concern that a stronger dollar would erase the computer maker's profits from operations in Asia.
"Most vendors will face pressure as Asia worsens," said Steven Milunovich, a computer hardware analyst at Merrill Lynch.
Milunovich said Asia poses a threat to all technology companies. Since IBM is one of the sector's bellwethers, Asia is likely to take its toll on the company as well.
"We're expecting the strong dollar to cut 3-1/2 points of growth off IBM's revenue and reduce earnings per share by 15 cents," he said.
Shares of the Armonk, N.Y.-based IBM (IBM) closed down 2-5/8 to 109-5/8.
The decline comes after last Thursday's rally in the dollar, which hit an eight-year high against the Japanese yen on official word that the world's second-largest economy is in a recession.
And investors also have sold off shares of other multinational corporations such as Minnesota Mining & Manufacturing Co. (MMM) based on fears of lower profitability. A stronger dollar translates into weaker profits when overseas currencies are converted.
Merrill's Milunovich now sees IBM's sales in Japan dropping at a double-digit rate as measured in dollar terms. Despite solid demand in the United States and Europe, Big Blue is now forecast to earn $1.45 a share in the second quarter, down from his previous estimate of $1.52 a share.
Wall Street has a consensus forecast of $1.50 a share, according to First Call.
He said any large computer company with a substantial multinational business will also seek adverse effects.
"Hewlett-Packard gets close to 20 percent of its revenue in the Far East. Our sense is HP is off to a slow start this quarter. NCR also does significant business in Japan. Many of these companies have gotten incremental growth in the Far East in the last few years and it's coming back to bite them," he said.
However, Milunovich believes IBM may still be a good buy, particularly for those investing for the long term. (169K WAV) or (169K AIFF)
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