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IBM Denies Slowdown In High Tech Industry

March 23, 1989

BOSTON (AP) _ With analysts cutting earnings estimates for both of the nation’s largest computer makers, top executives of International Business Machines Corp. tried Thursday to allay fears of a high-technology slowdown and its impact on the economy.

At a meeting of securities analysts in Boston, the men who run ″Big Blue″ predicted strong worldwide growth in demand for computers despite a cooling domestic market.

In the short term, they promised to deliver ″kinder, gentler″ computers that would be easier for individuals and more efficient for companies to use.

In the long term, they predicted that businesses would find more and more uses for computers, demanding ever larger amounts of memory capacity for ″paperless offices.″

″Far less than 2 percent of the data that mankind has generated is coded and stored in any kind of a computer format ... so there is still tremendous potential for growth,″ said Carl Conti, an IBM senior vice president.

John F. Akers, IBM’s chairman, chief executive and president, predicted the computer industry would continue to grow at two to three times the rate of the world’s economy as a whole.

But Akers said in an interview after his speech to the 150 analysts that the U.S. budget deficit is a wild card that could change IBM’s hand.

″Our financial position as a country is way out of balance,″ he said. ″It’s either going to come into balance ... or there’s going to continue to be a lot of economic fragility.″

The stock prices of both IBM and its nearest competitor, Digital Equipment Corp., plummeted during the past week when they said their quarterly earnings would fall below many analysts’ estimates.

IBM, the industry leader and the company with the highest market value in the nation, last Friday blamed a microchip manufacturing problem that has slowed delivery of its top-of-the-line mainframe 3090S computers.

IBM executives said Thursday they have solved the chip problem and will catch up with a backlog in orders by the end of the year. They denied that the problem has hurt demand for the mainframes.

Because of the manufacturing delays, Carol Muratore of Morgan Stanley & Co. said executives guided analysts toward earnings estimates for the year of $10.25 to $10.75 a share. Many analysts previously had expected earnings of $11 to $11.25 per share.

Digital, the second largest computer maker, said Wednesday it has seen a softening of demand for computers in the United States. At the low end of the market, more and more powerful personal computers and workstations have cut into sales of the larger and more expensive minicomputers and mainframes.

Several analysts questioned the IBM executives closely about the company’s continuing reliance on sales of computer hardware for approximately 70 percent of its revenues, while software and computer services are the fastest growing segments of the market.

George Conrades, a senior vice president, said IBM realized that it needed to emphasize software development and would begin ″wrapping our hardware like a burrito″ in software and support services.

While the IBM executives declined to make specific estimates for sales or earnings growth this year, they said they expected rapid increases in the Far East, slower growth in Europe and minor growth in the United States.

Akers also said IBM would compete vigorously in the market for computers that use open, or freely licensed, operating systems based on Unix, an increasingly popular system developed by American Telephone & Telegraph Co.

He said that while IBM faces strong competition from Japanese computer makers, it is poised to capitalize on heavy demand for computers in Asia and the construction of computerized manufacturing facilities by Asian companies in North America.

″I don’t think the problem (facing the computer industry) is really opportunity (for growth) as much as it is execution″ by individual companies, he said.

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