IBM Profit Dives 74% in Quarter, Sinks 35% for Year

International Business Machines, squeezed by a stagnating computer market and hard-charging competitors, on Wednesday reported a 74% drop in fourth-quarter 1989 profit. Full-year earnings fell 35% to $3.76 billion, the lowest since 1981.

The world’s largest computer company attributed the decline in fourth-quarter net, to $591 million from $2.35 billion a year ago, in part to a one-time $2.4-billion charge for the cost of a massive reorganization program now under way that is expected to trim at least 10,000 jobs over the next year and put the company back on a more aggressive growth track.

Despite modestly higher revenue for both the final quarter and full year, the company said its profits also were eroded by a continuing trend towards computer leasing, rather than outright sales. Profits were also hurt by a stronger U.S. dollar, which reduced the impact of profits generated by foreign subsidiaries.

Although analysts were largely prepared for the results, several said IBM has yet to demonstrate that the worst is behind it and that it is capable of resuming its previous growth rates and profit margins in the near future.

“There is no reason to believe that they have halted the slide,” said Steven Cohen, an analyst with SoundView Financial in Stamford, Conn. “The problems that they have been facing are likely to continue.”

IBM’s stock closed Wednesday at $98.875 per share, down $1.25 in New York Stock Exchange trading.

Although IBM is hardly struggling to stay afloat, its profit margins and sales growth rates are well below those of the early 1980s. Of particular concern to many analysts is the realization that IBM is increasingly forced to compete on price and with industry-standard products, a relatively new and untested battlefront for a company that had traditionally sold computers packed with proprietary technology.

Ulrich Weil, a high technology analyst in Washington, said he is particularly concerned because the company has failed to capitalize on some segments of the technology market--such as software--where its expertise and experience can make a difference in an increasingly standardized computer world.

“It’s lackluster,” Weil said. “And if IBM can’t at least do as well as the industry as a whole in software, it’s not a good omen for the rest of the business.”