IBM’s First-Quarter Profit Drops 18%

International Business Machines said Thursday that its first-quarter profit fell 18% from a year earlier, its first such decline since the fourth quarter of 1981.

IBM’s net income dropped to $986 million from $1.202 billion a year earlier. Revenue edged up only 2% to $9.77 billion from $9.59 billion.

In the four previous quarters, the computer giant had shown average year-to-year earnings growth of 20.6%.

Yet the lower profit in the latest quarter was expected. Earlier this year, IBM had predicted flat results for the first quarter, but, on March 22, it revised its forecast and said profit would decline.

However, IBM also said it expected business to pick up in the second half of 1985, so that full-year results would show “strong growth.”

Some industry analysts embraced that outlook. “The scenario the company sets forth definitely makes sense,” George Elling of Oppenheimer & Co. said.

Michael Geran of E. F. Hutton wrote in a current report that IBM “should reach 40% shipment growth in the second half of 1985; this should turn (profit) margins and accelerate earnings-per-share gains, and carry very strong momentum into 1986.”

The first-quarter results also contained no major surprises, analysts said. There had been suggestions that IBM might write down the value of its existing inventory of PCjr home computers, which IBM stopped making this month, but the machine was not mentioned in the company’s report.

Regardless, Wall Street appeared glad to have IBM’s results behind it. IBM’s stock climbed $1.125 a share to $127 in New York Stock Exchange composite trading.

IBM said in March and again Thursday that the first-quarter profit decline reflected two factors: the strong dollar and a hiatus in shipments caused by IBM’s Feb. 12 introduction of a new large-scale computer system, the 3090, and related data-storage products.

“We experienced a slowdown in installation activity in our high-end storage and processor installations as some customers paused to evaluate our recently announced IBM 3090 processor and enhanced IBM 3380 storage devices,” John F. Akers, IBM’s president and chief executive, said in a statement.

“In addition, the continued strengthening of the dollar to the recent high levels reached in March and its effect on currency exchange rates had a significant negative effect on the first-quarter results,” Akers said.

If currency exchange rates had remained the same as a year earlier, IBM’s profit would have dropped 7.1%, the company said.

But Akers also said that “customer reaction to our high-end products is favorable, worldwide new-order activity is encouraging, and we expect shipments to increase as the year progresses, particularly during the second half.”

Jonathan Fram of Paine Webber said that IBM would benefit, beginning in the current quarter, from a combination of orders for the new 3090 large-scale computers and continued demand for IBM’s older top-line family of mainframes, the 308X series. Fram said Thursday, however, that the market apparently disregarded his concurrent forecast that IBM will enjoy a significant rebound in the second half of 1985.

“We’re looking for 21% growth beginning in the third quarter that should last for about six quarters,” he said.

Other IBM trackers have cautioned, however, that IBM’s medium-scale computers could face the same sluggish order growth adversely affecting such minicomputer makers as Digital Equipment, Data General and Wang Laboratories.