Traders Wary of IBM Pledges; Stock Off Again


International Business Machines Corp.'s stock continued to fall Monday after an unusual briefing by the company’s five top executives failed to persuade stock analysts that the computer giant’s woes were over.

In composite trading on the New York Stock Exchange, IBM shares fell $3.875 to close at $85.125, 39% lower than the Feb. 19 high this year of $139.75. and the lowest level since 1982.

The stock started falling in the afternoon as word spread that some analysts would probably trim their 1992 profit forecast as a result of the meeting. This, despite a vow from Chairman John Akers that the company’s dismal performance this year was an “aberration” that will be corrected in 1992.

Akers’ categorical statement that IBM’s hefty dividend would not be cut also failed to stabilize the company’s stock, long the bluest of blue chips on Wall Street.


Analysts said they feared that the firm’s gross margins would remain under pressure even if sales rebound next year as Akers predicted. According to wire service reports, analysts for Dean Witter Reynolds Inc. and Sanford C. Bernstein reduced 1992 earnings estimates later in the day.

In speaking to analysts, Akers also gave additional details on the ambitious decentralization plan announced last week and vowed that the new IBM would be more open and communicative. But most analysts continued to view the changes as incremental, and Akers’ four colleagues on IBM’s management committee said little about the reorganization as they discussed the prospects for different pieces of the sprawling business.

The meeting itself was a rare event for IBM, which employs an army of public relations people charged with carefully controlling the release of information. The company’s last meeting with analysts was two years ago, and never before had all the members of the management committee appeared together for a public presentation.

But exceptional measures are necessary in light of the company’s recent results. Annual revenue will decline this year for the first time since 1946, and the company will report a loss this year after earning $6.02 billion on revenue of $69.02 billion last year.


Although Akers on Monday attributed many of the problems to what he called “the most difficult year in the history of the information technology industry,” he also acknowledged that the company has become too bureaucratic and slow-moving to compete effectively with smaller, nimbler rivals. In addition, the rise of the personal computer has severely undercut IBM’s traditional strength in large mainframe systems.

Last week, Akers revealed plans to break the company into independent business units that will have full profit-and-loss responsibility, with corporate headquarters serving as a holding company that will set financial targets but stay out of day-to-day operations. The company will also take a $3-billion restructuring charge in the fourth quarter, in part to cover the cost of eliminating 20,000 jobs.

Akers said that the cost-cutting efforts will continue and that if business doesn’t improve, the company’s longstanding no-layoff policy “will clearly be on the table.” In addition, he said employment policies will be the responsibility of the individual business units, increasing the likelihood that there will eventually be layoffs of IBM employees.

He also said capital investment will decline this year and for the next two years. Research and development expenditures will be flat during the same period, he added.


Akers stressed the importance of renewed revenue growth as the key to better profitability and predicted that IBM would grow next year by gaining market share in traditional computer segments, expanding its service and software businesses, and stepping up the sales of IBM products to other companies for resale under their own names. Sales have begun to pick up in the fourth quarter, he said, and next year the company will benefit from a broad range of new products.

Chief Financial Officer Frank Metz predicted that long term, the industry would grow at 7% to 10% per year and that IBM would grow with the industry.

Many of the objectives sketched out Monday were for three years hence, underscoring the fact that the decentralization program is a long-term effort that won’t yield concrete results for some time.

“These are evolutionary changes, and we’ll have to wait and see,” said Stephen Cohen an analyst with Soundview Financial Group.


IBM Restructuring IBM hopes that its restructuring of its business units into separate operations will allow itto compete more effectively in the ever-growing industry. IBM Revnue: $69 billion (1991) Pennant Systems Co. $2 billion in revenue (printer operations) Storage Products $11 billion in revenues (disk drives, optical disks, computer tape) Employment Solutions Corp. (hiring and recruiting services)

Revenue (in billions) 1990: $69 1989: $63 1988: $60 1987: $55 1986: $52

Stock prices (monthly figures for 1991) Jan. 25: 122.63 Feb. 22: 133.25 Mar. 29: 113.86 Apr. 26: 107.38 May 31: 106.13 June 28: 97.13 July 26: 100.50 Aug. 30: 96.86 Sept. 27: 102.25 Oct. 25: 98.00 Nov. 29: 92.50 Dec. 4: 90.00 Dec. 9: Monday close: $85.13