IBM Will Cut 10,000 Workers to Reduce Costs : Computers: The company will also take a $2.3-billion charge in the first quarter. The staff cutback reflects slower-growing sales of its big mainframe machines.
Underscoring once again the ongoing tumult in the computer industry, International Business Machines said Thursday that it will cut more than 10,000 workers, or nearly 3%, from its worldwide payroll this year to bring expenses in line with its slower-growing sales.
At the same time, the company said it plans to take a one-time after-tax charge in the current first quarter of $2.3 billion to recognize costs of providing certain retirement benefits for employees. The accounting adjustment, a paper transaction, will not affect its ongoing operations but will lower the company’s annual net earnings for 1991.
In taking the charge, IBM is believed to be the first major U.S. company to adopt a new accounting standard that requires firms, by 1993, to account for the present and expected costs of providing health insurance and other nonpension benefits to eventual retirees. The accounting standard, by forcing firms to recognize these costs up front, is expected to dramatically reduce corporate earnings in the short run.
IBM’s latest job reductions push the total number of jobs cut from IBM’s global work force since 1986 to 43,000. Like earlier cuts, this year’s reductions will be made through a combination of attrition and voluntary incentive programs, and will not involve layoffs, the company said.
However, unlike earlier cuts, this year’s reductions will affect IBM’s once torrid-growing European operations. IBM said about 40% of the jobs to be eliminated would come from its offices and plants throughout Europe and reflect slower computer sales there.
The remaining 6,000 jobs will be cut throughout the United States--including an undetermined number in California--but will not involve any plant or office closings. IBM expects its work force to stand at about 359,000 by year-end.
Analysts said the latest cuts demonstrate yet again how overly optimistic IBM was in the late 1970s in projecting the growth of its computer business through the 1980s. Further, IBM--which depends heavily on sales of its large, expensive and powerful mainframe computers--has been stung by the surge in popularity of less expensive desktop computers made by a variety of upstart competitors, analysts said.
“IBM has always had a rosier view of its future than is warranted. And it still does. It’s a corporate culture thing,” said Ulrich Weil, a technology analyst in Washington.
Added Stephen Cohen of SoundView Financial in Stamford, Conn.: “IBM’s core business, the mainframe, is growing more slowing than they ever expected.” According to Cohen, IBM had once projected sales of $100 billion by 1990 and had built its organization around that estimate. However, last year the company’s sales were $69 billion.
“Now that sales are growing at less than 6% or less, they are choking on the excess capacity,” Cohen said. “They were wildly optimistic and can’t scale back fast enough.”
Still, Wall Street was heartened by IBM’s move, sending its stock up $1 per share to $113.875 in New York Stock Exchange trading Thursday.
Several analysts said the latest employee cuts may not be sufficient to solve IBM’s fundamental problems, and the company may be forced to make additional cuts in coming years to bring its expenses in line with revenues. IBM officials did not rule out the possibility.
The latest job cuts were announced just a week after IBM revealed that its 1991 profit and sales would be less than Wall Street analysts had been projecting.
IBM’S SLUMP
IBM’s slump is partly explained by the fact that its division producing the biggest revenues--high- and mid-range computers such as mainframes--is suffering the slowest industrywide growth.
Projected Share U.S. sales of 1990 growth in Division revenues* 1991 High- and mid-range computers 24.3% 1% Personal computers, workstations 20.8 7% Peripherals 19.8 NA Software 14.9 8% Customer service, maintenance 16.4 10% Other 3.8 NA
*1990 figures are estimates.
Sources: Annex Research (revenue shares); International Data Corp. (growth projections)
