IBM Reduces ’85 Earnings Projection : 9-Month Profit Will Be Lower Than Last Year’s, Firm Predicts

IBM on Wednesday joined the rest of the U.S. computer industry by lowering its forecast of earnings for 1985, attributing the change to a lull in the domestic economy.

In a speech written for an all-day securities analysts meeting, IBM President John F. Akers said the company’s nine-month earnings will be lower than 1984’s $4.4 billion and cautioned that, “to show earnings growth for the year, we are depending on an especially strong fourth quarter.”

His statement sent the prices of shares in IBM and other computer makers falling on Wall Street.

As recently as the company’s annual meeting in April, Akers had projected solid growth for IBM this year despite an 18% decline in first-quarter profits. But Akers said Wednesday that “achieving the solid growth we expected for 1985 is now unlikely.”

‘Overcapacity’ Blamed

Akers blamed his company’s reduced expectations on the continuing strength of the dollar and a slowdown in domestic order rates because of “overcapacity of computing power.”

He said an “unprecedented upsurge of capital spending” from 1982 to 1984, a period that saw IBM’s revenue increase about 75%, has apparently slowed while customers pause to reassess the pace of their own companies’ growth.

He said the pause “has had a direct impact on our industry. Industry order rates for office computer and accounting equipment in April, in comparison with March, posted a 30% drop.”

Akers said that, if the U.S. economy does not improve in the second half, the dampening effects could spill over into 1986.

However, with the buildup of production and shipments of high-end processors and storage devices during the latter part of 1985, he said, the company expects to enter 1986 in a quite favorable position.

Akers said IBM has revised downward its own forecast for real U.S. gross national product growth for the year to 2.9% from 3.7%. He blamed in part the increased level of imports, fueled by the strong dollar.

But he said IBM still expects its worldwide shipments to increase by 20%, compared to 30% in both 1983 and 1984, and revenue to exceed $50 billion, compared to last year’s $45.9 billion.

The company said it expects research, development and engineering expenditures to exceed those of 1984 by 20%. Those expenditures rose 34% in 1984 over 1983 levels.