Thursday: IBM's Potent Profits Indicate Y2K Problem Gaining Currency

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By John J. Edwards III
Staff Reporter

This morning's Big Tech Rally, sponsored by

IBM's

(IBM) - Get Report

big upside earnings surprise yesterday, got great initial ratings but has since been put on hiatus. The

Dow Jones Industrial Average

has cooled off at midday, with IBM's boost of 9 1/2 to 151 7/8 saving the measure from a larger calamity. Profit-taking in

Procter & Gamble

(PG) - Get Report

,

United Technologies

,

AlliedSignal

(ALD)

and

DuPont

(DD) - Get Report

is weighing things down.

The tech-heavy

Nasdaq Composite Index

similarly opened strong and gave up ground later, with

Microsoft

(MSFT) - Get Report

skidding badly and

Intel

(INTC) - Get Report

trimming back to a modest increase.

IBM stunned Wall Street (and

The Street's

fearless co-chairman,

James Cramer) with first-quarter earnings of $2.37 per share, far ahead of the

First Call

consensus estimate of $2.28. The company said good performance in services, personal computers and software compensated for weakness in mainframes and minicomputers.

One of the service areas that's quietly becoming a bigger and bigger part of IBM's revenue stream is fixing the Year 2000 problem. That's the dilemma older computers are facing in dealing with the change in two-digit date fields to "00" from "99." Smaller Y2K companies have met with propulsive stock gains but derision from sages like Alan Abelson of

Barron's

and Christopher Byron of

The New York Observer

, who say the problem is overblown and will be fixed mainly by the, uh, IBMs of the world.

Which brings us to IBM itself. Stephanie Moore, an analyst at

Giga Information Group

, said IBM has been "hiring like crazy" to meet demand from its major clients for Y2K fixes. With the emphasis on

major

. "If you send a

request for proposals out to six vendors and IBM is one of them, IBM might not even answer the RFP because they have so much work already," Moore said.

IBM is about to launch a "really huge push" to further advertise its Y2K expertise to top clients, and that should compensate for slowdowns in other software areas in the next few years, Moore said.

Computer Associates

(CA) - Get Report

, rallying today on a positive fourth-quarter earnings preview, is another large, trusted name that is getting into Y2K in a big way, she said.