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IBM discontinued operations loss $515 m

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CIOL Bureau
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Caroline Humer

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NEW YORK: International Business Machines Corp. on Tuesday said that for the

past five quarters it booked a total after-tax loss of $515 million from its

discontinued hard disk drive operations.

The added disclosure came in a regulatory filing a week ahead of the

company's second-quarter earnings announcement, when it had planned to release

the information for the year-earlier period, and at a time when investors are

examining all financial statements closely.

"This is more or less what I expected," said Jay Stevens, an

analyst at Buckingham Research Group. The news pushed IBM shares up a few cents

in after-hours trading to $69.70 on the Instinet brokerage system.

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IBM has been under pressure to provide more financial disclosure for the past

six months as investors have become increasingly critical of what they say has

been a long history of managing its earnings growth. According to the filing,

IBM's hard-disk drive operations subtracted $92 million from net income in the

first quarter of 2002 and $423 million for the four quarters of 2001.

Big Blue had not previously broken out the financial results of the unit. IBM

said that net income after discontinued operations was $7.713 billion in 2001

and $1.192 billion in the first quarter of 2002.

The fourth-quarter of 2001 was a big loser for IBM's hard-disk drive

business, which has struggled with profitability for years. IBM said that its

after tax loss from the operations that quarter was $232 million and that net

income after discontinued operations was $2.333 billion.

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IBM also stripped out $3.32 billion in revenues from the hard-disk drive

operations for the five quarters. For 2001, the revenues are $83.067 billion,

down from the $85.866 billion the company had previously reported. In the first

quarter of 2002, IBM's revenues were $18.03 billion after the sale of hard disk

drive assets, compared with the $18.551 billion it previously reported.

IBM said in June that it would sell its hard drive operations for $2.05

billion to Japan's biggest electronics maker Hitachi, which will combine them

with its own in a joint venture that Hitachi will fully own in three years.

Hitachi will initially own 70 per cent of the joint venture.

It will lay out next week a $2.0 billion to $2.5 billion pre-tax charge that

it announced last month that will cover the hard disk drive business and other

actions, including closing some microelectronics manufacturing capacity and job

cuts.

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The sale of the unit requires IBM under Generally Accepted Accounting

Principles to reclassify previous quarterly income as either income from

continuing operations, or income from discontinued operations, which are in this

case the hard disk drive operations.

IBM has been pressured this year by investor concerns about accounting. Back

in February, the company was criticized for not disclosing how the sale of

certain assets, like intellectual property, affected its earnings.

The company, whose chief executive Sam Palmisano took over from chairman and

long-time CEO Louis Gerstner on March 1, said it would begin disclosing more

financial information in its annual report.

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The stock has fallen, however, as investors worry not only about accounting

but about the outlook for corporate technology spending, which declined in 2001

and is expected to fall again this year.

UBS Warburg analyst Don Young said in a note on Monday that selling the hard

disk drive business should help IBM to meet earnings expectations for 2002.

Young declined to comment further on Tuesday after the IBM numbers were

released.

Analysts currently see the company earning $4 per share in 2002, according to

Thomson First Call. IBM shares have fallen 42 per cent so far this year to trade

at levels not seen since the fall of 1998 while the broader American Stock

Exchange Computer Hardware Index has given up 27 per cent.

(C) Reuters Limited.

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