IBM shares fall on SEC worries
Published: 12 Apr 2002 07:31 BST
The US Securities and Exchange Commission has started a new investigation of IBM's accounting practices, according to a report from private research firm SEC Insight.
In a report published on Thursday, SEC Insight said the SEC has started a preliminary investigation of IBM's accounting and disclosure. In an email response to a CNET News.com inquiry, SEC Insight president John Gavin confirmed the report.
"It does appear that this new inquiry is unrelated to a long-running investigation of the company as that probe actually ended on 13 February, 2002," Gavin said. SEC Insight tracks the correspondence sent between the SEC and companies that generally isn't disclosed or released.
Gavin said it wasn't clear what the new inquiry was about, but it started on 15 February, the same day The New York Times published a story on IBM's accounting.
An IBM spokeswoman said the company "doesn't comment on the company's relationship with government agencies."
A spokesman for the SEC said the agency couldn't confirm or deny the inquiry.
Talk of the possible inquiry rattled shares of IBM, which fell $3.96 to $85.05.
It's been a rough week for Big Blue on Wall Street. On Monday, IBM issued its first profit warning since 1991.
The company said it expects to post a profit of between 66 cents and 70 cents per share, or between $1.65bn and $1.75bn, with revenue coming in at between $18.4bn and $18.6bn. Analysts were expecting Big Blue to post a first-quarter profit of 85 cents per share on revenue of $19.65 billion, according to First Call.
Analysts said the profit warning may have at least partly stemmed from calls for more accounting disclosure. In recent quarters IBM has used nonoperational financial items such as tax rates and pension fund gains to produce strong results, but Wall Street has frowned on the use of those financial levers.
That fact eliminates IBM's ability to use such financial items to offset weak sales, analysts said.
"We believe (IBM's) preannouncement reflects reduced flexibility, in part stemming from increased disclosure requirements," said Prudential Securities analyst Kimberly Alexy.
Worries about IBM's accounting have rattled shares of late. It was recently reported that the SEC requested that Big Blue amend its 1999 annual report and its first-quarter report. The matter was resolved without the company having to amend the reports.
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