In his statement, Joyce cited a particular problem in the company's technology group, which produces and sells semiconductors, disk drives and other equipment to other computer makers, telecommunications companies and cell-phone manufacturers. Revenues in the technology group were down about 35 percent in the quarter from the year-earlier, and the group expects to lose approximately US$200 million, or 8 cents a share.
When high-technology spending surged in the late 1990s, the technology group was a strong business for IBM, as shipments had trouble keeping up with demand. But with demand down, IBM still has high fixed costs because it owns and runs manufacturing plants around the world.
IBM, analysts say, may well consider layoffs in the technology group or shrinking its payroll through attrition. And it could slow or abandon a factory project or two.
Still, the weakness in IBM's business of supplying technology parts to other companies was not a surprise. And the cyclical problem could correct itself fairly quickly if corporate spending in information technology picks up in the second half of the year, as most analysts anticipate.
But IBM does face some longer-term problems as well, according to Tom Bittman, an analyst at Gartner. The company's PC business, Bittman said, is declining faster than expected and its sales of mainframe computers continue to erode. Despite its shift to software and services in recent years, IBM remains dependent on hardware sales.
In addition, the growth in its services business, especially consulting, has slowed to about 7 percent, down from 15 percent or more a few years ago. "It's just fine, but it's not growing at the same rate," Bittman said.
For all its focus on the specifics of its business, the IBM announcement is viewed mainly as a sign of the buying halt by large corporations. A number of technology companies -- PeopleSoft, Oracle and others -- have recently cautioned that corporate customers remain on the sidelines. Last month, Richard Sherlund of Goldman Sachs, a leading software analyst, said he expected Microsoft to soon reduce its financial forecast for the year. Microsoft will report its quarterly results next week, on April 18.
"IBM is almost an economy unto itself," said John Gantz, the director of research for the International Data Corp. "If it is hurting, it is because the whole information-technology sector is hurting. But it is a fundamentally sound company."
There are some tentative signs that investment may be starting to pick up a bit. CIO Magazine conducts monthly polls of corporate buying plans among more than 250 chief information officers at companies large and small. Purchasing plans for the next 12 months were sharply up in March, though the most optimistic projections came from smaller companies.
But 83 percent of big companies said they had long-delayed information-technology projects that had to get done before long.
RSS