IBM Reports First Quarterly Loss Ever--and It’s a Big One
International Business Machines on Friday reported its first-ever quarterly loss, a $1.73-billion deficit it blamed on the recession, the Persian Gulf War and a new method of accounting for retiree benefits.
Without a one-time charge for the new accounting method, IBM said it would have reported a profit of $532 million for the quarter, still about half the level of the year-earlier quarter.
Although IBM had prepared analysts and investors for the loss in an unusual mid-quarter briefing last month, several analysts said they were surprised at the apparent depth of IBM’s problems--both in the United States and internationally.
Most startling, they said, was IBM’s revelation that sales of computer hardware--the mainstay of the company’s business--fell more than 17% during the quarter from the prior year. All computer categories, but especially the PS/2 line of personal computers, were affected.
“It’s all pretty ugly,” said Stephen Cohen, a technology analyst at Soundview Financial in Stamford, Conn. “The hardware sales were dreadful. . . . The company should be scared.”
Investors apparently are. Since the company’s earnings advisory last month, IBM stock has dropped $19.375 per share. On Friday, the stock closed at $108.50 per share on the New York Stock Exchange, down $2.125 for the day.
Sales in the quarter were $13.5 billion, down 4.5% from a year ago. The company’s first-quarter profit last year was $1 billion.
Analysts said the company, which already plans to trim 10,000 jobs from its worldwide work force this year, said it would consider additional job cuts if its performance does not improve in the coming months.
Last month the company said it would take a one-time charge of nearly $2.3 billion to cover the costs imposed by a new federal accounting rule covering employees’ post-retirement health benefits. All U.S. companies eventually must make the accounting change.
IBM had repeatedly blamed its business slowdown on the ongoing global recession and the effects of the Persian Gulf War--not on any internal company problems, as analysts have.
“The worldwide economic slowdown has created an uncertain and difficult business environment,” IBM Chairman John F. Akers said in a prepared statement. “However, we believe the underlying long-term need for, and value of, our products and services has not diminished. The strength of our product line and the actions we have taken to improve our efficiencies place us in an excellent position to take advantage of any economic improvement.”
While computer sales were generally poor across the entire product line, the company acknowledged for the first time that its share of the personal computer market, one of the better-performing segments of the lackluster technology industry, had declined.
Analysts said hard-charging competition and price cutting spurred by Apple Computer, AST Research and other low-cost manufacturers had taken a bite out of IBM’s PS/2 line.
“They are losing market share in the most vibrant sectors of the computer industry,” said Ulrich Weil, a technology analyst in Washington. “This is a very bad omen.”
Sources said IBM is likely to begin aggressively cutting prices on some of its PS/2 models soon to spur sales.
Analysts said IBM’s performance should improve later this year when a new generation of mainframe computers is finally in full production. However, many said they doubted that the company’s results for 1991 would match those of 1990.
