Battered IBM’s 3rd-Quarter Profit Plunges 85% : Technology: The computer company also says it will eliminate another 3,000 jobs this year--for a total of 20,000.

Showing no signs of reversing a dramatic decline in its business, International Business Machines reported on Tuesday that profit for the third quarter fell 85% from a year ago, while revenue declined by 5.5%.

The world’s largest computer company also said that it would eliminate 20,000 jobs this year as part of a broad cost-cutting program, up from the 17,000 it had previously targeted.

Wall Street, seemingly inured to bad news from what was until last year the world’s most profitable corporation, took the weak earnings in stride. IBM stock edged up $3 per share on the day, closing at $104.25 in New York Stock Exchange trading.

Although IBM has attributed many of its difficulties to the weak economy, the company’s underlying problem is the fundamental shift by computer buyers away from large, centralized computer systems--IBM’s specialty--and toward networks of desktop machines. At the same time, IBM and many other computer companies have been hit by severe price competition and slow growth in the personal computer business.

For the three months ended Sept. 30, Armonk, N.Y.-based IBM earned $172 million, or 30 cents per share, compared to $1.1 billion, or $1.95 per share, for the comparable quarter a year ago. Revenue fell to $14.4 billion from $15.3 billion.

Jay Stevens, an analyst at Dean Witter Reynolds, said the earnings were in line with expectations, and that the company was “headed in the right direction” after a string of bad quarters.

But other analysts were far less optimistic.

“All in all, it’s a terrible quarter,” said Thomas Rooney of Donaldson Lufkin & Jenrette. “If it were not for the fact that interest rates are down and there’s a lot of money coming into the market, their stock would be down three or four or five points.”

Rooney pointed out a number of factors showing that IBM’s business was anything but healthy. Product revenue, he said, was down 14% from a year ago, a decline that competitors such as Digital Equipment and Hewlett-Packard have not experienced.

Software revenue, Rooney added, was flat, even though IBM has said software would be a key source of profits for the future. And he said the new mainframe computers that began shipping several weeks ago--products that IBM traditionally relies upon for a big earnings boost when they first hit the market--were already being sold at a discount in the face of weak demand.

IBM has responded to its problems by forging alliances, cutting costs and trying to get products out the door faster. The company earlier this month signed a broad cooperation agreement with onetime rival Apple Computer, though the results of that deal will not be felt on the bottom line for years.

IBM has maintained its no-layoff policy--the 20,000 job cuts will come through attrition and early retirement--but employees are under increasing pressure to shape up or ship out. IBM Chairman John F. Akers has openly criticized employees for complacency, and performance reviews have reportedly been tightened.

On Monday, IBM acknowledged that a crucial new personal computer software system that was scheduled to be ready by year-end will be late, thus handicapping the company in its high-stakes battle with software giant Microsoft for dominance of a key market.

In a statement Tuesday, Akers was cautious about IBM’s prospects in the near future. “Although business conditions remain unsettled, we expect improvement in the pace of our business as shipments of our new product line build.”