IBM Profit Skids 92%; Lower Sales for All 1991 Seen : * Computers: Competition, a weak global economy and a changing product line were blamed. Now 17,000 workers--3,000 more than expected--will lose their jobs.
Continuing its free fall, International Business Machines said Friday that the weak global economy, increasing competition and its own product transitions led to a 92% drop in second-quarter profit amid an 11% decline in sales.
Further, the world’s largest computer maker said that, barring a miraculous upturn, sales for all of 1991 would be lower than those of a year ago, marking the first time since the end of World War II that the company’s revenue failed to increase.
The latest bad news--the second consecutive steep quarterly decline for a company once accustomed to double-digit growth--failed to faze Wall Street, which had been warned of the quarter’s probable outcome.
In fact, investors, who had feared that the company would post its first operating loss, greeted the news with measured enthusiasm, bidding the stock up $2.25 per share to close at $100.50 in active trading Friday on the New York Stock Exchange.
Profit for the quarter ended June 30 was $114 million, compared to $1.4 billion in the year-ago quarter, while sales were $14.7 billion, compared to $16.5 billion. Like the first quarter, when the company lost $1.7 billion because of a special one-time accounting charge, IBM posted a one-time charge against profit of $200 million to cover higher-than-expected costs of its ongoing employee reduction program. “We’ve hit bottom for this year,” said Bob Djurdjevic, publisher of a market newsletter in Phoenix. “I thought the third quarter of last year would be the trough, but here we are looking up at that point.”
Although analysts said IBM’s fortunes should pick up in the last half of the year, they stressed that the continuing string of depressing news underscores the extent to which rival computer makers have stolen sales and again demonstrates the need for further cost and employee cutting at the bloated company.
IBM said Friday that it expects to trim about 17,000 employees from its work force by year-end, about 3,000 more than originally estimated. By the end of 1991, the company will have about 357,000 employees worldwide, about 50,000 fewer than at its peak five years ago.
In a terse statement Friday, IBM Chairman John F. Akers said: “Our second-quarter business performance was affected by continued weakness in global economies, competitive pressures and transitions within our product line. . . . While we expect the pace of business to improve in the second half of 1991, it is unlikely the company will achieve revenue growth for the full year.”
Several analysts said computer sales will probably increase during the remainder of the year because IBM will soon be ready to ship its new top-of-the-line mainframe computer model. Sales of mainframes, which account for about 45% of its overall business and more than 50% of its profits, have lagged in recent months while the new model was readied.
Analysts have long said that the last nine months would be among the most difficult for IBM because the introduction of the new mainframe series would chill demand for earlier models and that the new models would not sell in sufficient initial quantities to replace the lost revenue.
Computer sales in the second quarter were even lower than in the first, falling 22% below those of the year-ago period. Software sales, once one of IBM’s bright spots, were flat compared to the year before.
Analysts who were briefed by IBM executives Friday morning said the company has noticed some slim signs of improved sales in the United States but further weakening in the Asian and European markets. Japan was said to be particularly weak.
Analysts said that as shipments of the final model of the new series begins this quarter, IBM sales should begin to pick up slowly and show their full effect by the final quarter of the year.
However, some analysts remained cautious about the company’s ability to win back the market share it has lost in the personal computer and software markets. “There’s no evidence that they have a handle on the problem,” Djurdjevic said.
Stephen Cohen of SoundView Financial Group said he is even unsure whether demand for the new mainframes is as high as IBM has thought and whether IBM revenue will grow significantly in the final six months of the year.
