IBM Reports First Loss--$2.8 Billion : Business: The 1991 decline is blamed on the recession and costs of staff reductions. The firm’s stock has fallen, but analysts believe it will weather the storm.
IBM on Friday reported an annual loss for 1991 of $2.8 billion, the first in the 80-year history of the giant computer maker that has represented America’s technological leadership and marketing might around the world.
The setback, which included a fourth-quarter deficit of $1.4 billion and the firm’s first decline in revenues since 1946, reflects burdens hitting many of America’s corporate giants: the costs of shedding tens of thousands of employees while providing for their health care as sales are slowed by the lingering recession.
Fundamental changes in the computer market also stymied International Business Machines Corp. as it struggled to expand from its stronghold in large, centrally controlled mainframe computers into the fast-growing field of desktop computers, which are replacing many mainframes.
It “was a disappointing year,” IBM Chairman John F. Akers said. “We were adversely affected by protracted worldwide economic weakness, competitive pressures and transitions within our product lines.”
Analysts say things should look up for IBM next year, though critics say it is not doing enough to cut costs and stem its problems.
Most IBM-watchers are not ready to say it will go the way of the American auto industry, but some say it shares with General Motors Corp. the disadvantage of an entrenched, bureaucratic corporate culture.
“IBM is a large company wrestling with the problems of its huge size and its cultural heritage and being unable to move fast in a rapidly changing market. The Japanese are breathing down its neck in some sectors,” said Ulric Weil, head of Weil & Associates, a consulting firm in Washington specializing in high technology.
The loss, which analysts expected, resulted in part from $3.4 billion written off to account for the expenses of early retirement benefits and other costs of slimming IBM’s staff by 29,000 last year. The company also wrote off $2.3 billion to account for costs of future retiree health benefits.
Aside from these costs, IBM’s core business of selling computers recorded a disappointing profit of $942 million, down 92% from $11 billion last year. Its 1991 worldwide revenues of $64.8 billion fell 6% from 1990.
For IBM’s 345,000 employees worldwide, the loss marked the end of an unsettling year. Continuing staff reductions and a major organizational shake-up aimed at invigorating the firm’s infamous bureaucracy shocked what had been one of the world’s most stable corporate cultures.
In July, IBM surprised observers with plans jointly to develop personal computers and software with Apple Computer Inc., a fierce competitor whose freewheeling corporate culture is already clashing with the button-down atmosphere of the company known as Big Blue. And in December, IBM announced a plan to make its business units more independent, even to the point of allowing them to combine non-IBM equipment with in-house products to meet customer needs.
Nonetheless, analysts and some shareholders are clamoring for even faster staff cutbacks, saying the company has been too kind in avoiding out-and-out layoffs.
IBM’s management “thinks they are being merciful and generous by not (cutting people) until the water is up to their nostrils . . . but they are deluding themselves by saying we’ll get over these problems in a few years,” Weil said.
For investors, including many small shareholders who had bought IBM stock believing it was a safe investment, the announcement underscored the fact that the company has lost its image as the bluest of blue chips and is no longer a safe bet.
Investors who bought IBM stock for $176 per share at its peak in 1987 have watched it lose nearly half its value. On Friday, IBM closed at $96.375 per share, up 87.5 cents for the day but well below last year’s high of $139. Earnings per share were a negative $4.95 for 1991, compared to a positive $10.51 in 1990.
“You can’t put your money in and forget about it. Technology has always been a volatile investment,” said Philip Rueppel, an analyst at the investment firm of Sanford C. Bernstein.
IBM still dominates certain segments of the computer industry, and its sales--about half of which are overseas--remain almost five times larger than its nearest competitor, Digital Equipment Corp. But it has faltered in the growing market for desktop computers, which, when linked into networks, are replacing many mainframes, IBM’s greatest strength.
“IBM’s feet are stuck in the mainframe mud,” Weil said.
But other analysts say that reports of the death of the mainframe are greatly exaggerated, and they note that sales of IBM’s newest mainframe line, released in September, have been strong. In fact, slow sales in the first three quarters of this year were due in part to customers waiting for the new models, which had been announced a year earlier.
Analysts agree that sales and profits should improve for IBM in 1992, driven by increasing demand for mainframes as low interest rates and a recovering economy stimulate corporate investment in new equipment.
Bob Djurdjevic, president of Annex Research in Phoenix, estimates that revenues should grow 7% to 10% this year and that profits should recover as well to between $6.50 and $7 a share. But he said he is expecting another $1 billion or so in costs to cover the continuing restructuring.
IBM says it plans to cut another 15,000 to 20,000 jobs this year, even though 9,000 more employees than expected took early retirement in 1991. IBM-watchers say they are happy to see the slimming, but they said they are also worried that some of the company’s most talented employees may be the ones that are leaving.
