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IBM faces temporary ban on new business with US government

From IBM yesterday

IBM logoIBM announced today that it has learned that it has been temporarily suspended from participating in new business with U.S. Federal government agencies.

IBM’s market cap today is around $160B, with revenues of $98B reported in the last annual report (here). In FY2007 IBM did about $1.4B of business with the US government (check for yourself here — thanks to c|net for the link).

The trouble is related to suspicion at the US Environmental Protection Agency that IBM may have violated the Procurement Integrity Act in March 2006 bid.

The temporary suspension applies to all Federal agencies and IBM business units. IBM may continue awards in existence as of the date of this suspension, unless a particular agency directs otherwise.

In addition, the U.S. Attorney’s Office for the Eastern District of Virginia has served IBM and certain employees with grand jury subpoenas requesting testimony and documents regarding interactions between employees of the EPA and certain IBM employees.

IBM has 30 days to contest the temporary action. An article from the AP today is headlined: “Contract Suspension Not Seen Hurting IBM”

Citi Investment Research analyst Richard Gardner, who rates IBM “Buy,” said the U.S. federal government contributes just 2 percent of the company’s total sales. And about half of that is from existing multiyear contracts, which the suspension won’t affect.

Gardner kept his estimates intact, saying Wall Street’s expectations for IBM in 2008 were already conservative.

…Goldman Sachs analyst David C. Bailey called the suspension “troubling” but added that the impact on IBM should be small.

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