IBM Profits Hit By PC Price War

Sharply lower prices for desktop computers have eaten into industry profits for months and now have bitten IBM, the world's largest computer maker.

International Business Machines Corp. on Monday said its first-quarter profits dropped 13 percent, hurt in part by a price-cutting war with rival PC makers and weak demand in Asia.

The industry, which late last year overestimated demand from customers, has been forced to aggressively cut prices to try to trim inventories. Last week Compaq Computer Corp., the No. 1 PC maker, reported that flat computer sales nearly wiped out its profit in the first three months of the year.

IBM said that the price war in the PC business dragged down its overall hardware revenue 8 percent.

Still, IBM's results slightly beat the expectations of Wall Street analysts as the company enjoyed a 22 percent increase in revenue from its global services unit, a fast-growing business that helps companies set up computer systems and networks.

The Armonk, N.Y.-based company said in the three months ended March 31, it earned $1.0 billion, down from a profit of $1.2 billion a year ago. Revenue edged up 1.8 percent to $17.6 billion.

IBM interim chief financial officer Lawrence Ricciardi said the company was trimming computer inventories to stabilize prices. But he warned that the price war was expected to continue into the second quarter.

Sales of IBM's more powerful business computers were mixed. Revenues from mainframes dropped, but grew for server computers grew and were flat for workstations.

By David E. Kalish
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