Thursday December 9 5:09 PM ET IBM Sees Y2K Fears Still Weighing on Results By Eric Auchard NEW YORK (Reuters) - International Business Machines Corp. (NYSE:IBM - news), the world's top computer maker, on Thursday said a spending pause to avert Year 2000 glitches in big business computer systems was ``real,'' and it reiterated its warning to expect weaker results into the first quarter of the new year. John Joyce, who was recently elevated to the role of IBM's chief financial officer, told analysts and big investors at a meeting in New York Thursday morning that many large corporate accounts continue to hold off on new spending ahead of 2000. Shares of IBM, which were trading just below 118 by midafternoon, fell more than 5 percent to as low as 112-3/8 soon after the chief financial officer's comments were made available on IBM's Web site. The stock closed at 113-11/16, off 4-7/16, or 4 percent, on the New York Stock Exchange, in what analysts said was disappointment the company had not signaled a more positive near-term outlook in its meeting with Wall Street. ``What I can say at this point is that our view of earnings per share in the fourth quarter has not changed from the direction that Doug Maine gave you on Oct. 20,'' Joyce said, referring to the warning given to analysts by his predecessor. At that time, the prior IBM CFO had told analysts to expect fourth-quarter profits 15 cents to 20 cents per share below its year-ago earnings of $1.24 per share and that first-quarter 2000 results were also set to fall short of expectations. The fourth-quarter guidance was 20 percent below Wall Street's consensus expectations before the warning. ``Since late October, (IBM has done) a lot of work face-to-face with our customers and what I can tell you is this: The Year 2K (2000) lock-down is real, especially for many of our large accounts,'' Joyce told the financial gathering. Even so, Joyce said, the Armonk, N.Y.-based company would see a return to normal customer buying patterns of its diversified mix of computer hardware, software and technical services in the second quarter of 2000. He added that 2000 could prove to be a banner year. ``We are also convinced that as we move into the second quarter of next year, the customers will begin to spend on a more normal basis,'' Joyce said. ``We continue to believe that once we get past any lingering Y2K effects, that the year 2000 has the potential to be a very good year for IBM,'' he said. The news media was barred from attending the Thursday morning meeting between IBM's top executive team and Wall Street analysts. The company provided access via the Internet to an audio presentation of Joyce's comments in mid-afternoon. The comments were made at the outset of the company's fourth annual briefing for analysts on the company's e-business strategy for capturing a major share of corporate spending to Internet equip their businesses. Wall Street analysts who attended the meeting said the pullback in the stock followed a sharp run-up in recent weeks amid anticipation that IBM would unveil evidence of further progress it was making with its Internet business thrust. The stock had gained roughly 25 percent in the past three weeks, recovering off late-October lows around $90 that followed the company's warning of weaker upcoming results heading into early 2000. ``The stock crashed because just before the meeting the stock ran up in anticipation of some great news coming out of this,'' CIBC World Markets analyst James Berlino said after the meeting. The IBM share price drop triggered a sudden decline in the Dow Jones Industrial Average, which fell from about 11,140 to about 11,055, its intraday low, before later recovering most of its losses. The Dow closed at 11,135, up 67 points. Other computer issues, such as Hewlett-Packard Co. (NYSE:HWP - news), another Dow index component, also trimmed their gains. Hewlett-Packard fell back from a high of $112-13/16 to close at $110-11/16, up $1 on the day on the New York Stock Exchange. Berlino said the long-term outlook for IBM remains strong. ''The IBM story is positive. Get through this quarter and get through Q1 (first-quarter 2000) and I think you will see the stock really come together,'' he said. In presentations by the top officials of each of IBM's top business units, they described steps IBM is taking to transform their operations into Web businesses, delivering what IBM marketing guru Abby Kohnstamm called ``serious e-business,'' in contrast to simple Web design offered by many ``dot-com'' rivals. Chairman Lou Gerstner has said would IBM generate roughly $20 billion of its expected nearly $90 billion in annual revenues in 1999 from so-called ``e-business,'' the advertising mantra it has created for its Internet business activities. However, financial analysts said they are waiting for signs IBM was making further progress in stoking the lackluster growth in revenues IBM derives from older computer systems, especially its mainframe hardware business.