IBM Reports Largest Annual Corporate Loss : Earnings: The grim figures, though expected, put more pressure on company Chairman John Akers.
International Business Machines on Tuesday said it lost $4.96 billion in 1992, the largest annual loss in U.S. corporate history, capping a year so miserable that it may yet cost company Chairman John F. Akers his job.
The results came as no surprise after IBM’s December announcement that it would cut 25,000 jobs this year and take a huge charge against earnings, but the figures nonetheless painted a grim portrait of a company in precipitous decline.
For the fourth quarter--traditionally IBM’s strongest period--the company lost $5.46 billion on an 11% decline in revenue, and would have lost $45 million even without any special charges. The quarterly operating loss was the first in the company’s 79-year history.
Akers acknowledged in a statement that the results “are not acceptable to us or our shareholders,” but he said that cost reductions and other changes intended to give its 13 business units more autonomy have put the company “on the right path.”
That view, however, is not shared by a growing legion of analysts and major shareholders who are calling for Akers’ head.
Though the 58-year-old chairman and chief executive has said he will not resign and that he has full support from IBM’s board of directors, many predict that the same forces that led directors of General Motors to oust their chairman will eventually bring down Akers.
In an “open letter” to IBM’s directors to be published in the Silicon Valley magazine Upside, former IBM manager Charles H. Ferguson and consultant Charles R. Morris assert that “IBM has been grossly mismanaged for the last decade. . . . If this mismanagement is allowed to continue, the result could be a disaster of enormous proportions--for investors, certainly, but also for IBM’s employees, its suppliers, the U.S. computer industry and the nation as a whole.”
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Already, IBM’s troubles have been a disaster for many investors. The company’s share price fell $1.125 to $48.375 on Tuesday, continuing a long slide that has slashed the company’s market value by half since last summer and by more than two-thirds since 1987. At a board meeting next Tuesday, IBM’s directors are expected to cut the company’s $4.84 annual dividend by at least 50%--a move that would save nearly $1.4 billion a year.
The company has eliminated more than 100,000 jobs since employment peaked at 406,000 in 1985, including 40,000 last year and another 25,000 to be cut this year. Akers warned in December that IBM may have to abandon its traditional policy of reducing its work force only through attrition and voluntary severance programs--and lay off workers for the first time ever.
IBM’s financial results show little sign of improvement. Revenue for the year fell 0.4% to $64.5 billion--the second consecutive yearly decline--and company officials said they see no signs of a turnaround yet this year. The company attributes much of its problems to a worldwide economic slowdown. The $4.97-billion loss includes $11.6 billion in pretax charges to pay for work force cuts and factory closings, and a gain of $1.9 billion from accounting changes.
At the root of IBM’s crisis is a revolution in technology that has cut deeply into IBM’s core products--big mainframe computers. Instead of spending millions of dollars on IBM mainframes and the expensive accessories and services that come with them, corporations are now buying low-cost personal computers and workstations and linking them together in networks.
While the move toward smaller, less expensive computers has been under way for some time, the plummet in mainframe sales has been much faster than IBM anticipated. The company said Tuesday that mainframe revenue fell 12% last year, and sales of all computer hardware dropped a sobering 20% in the fourth quarter.
IBM’s troubles stand in stark contrast to the stellar performance of the two companies that have benefited most from the personal computer boom: chip maker Intel Corp. and software powerhouse Microsoft Corp., both of whom reported sharply higher profits last week. Critics cite IBM’s inability to reap some of the rewards flowing to Intel, Microsoft and others as evidence that IBM’s senior management is not up to the task of turning Big Blue around.
Ferguson, a former IBM software strategist, and Morris in their letter cite a long string of incidents where IBM tried to protect its traditional business rather than take advantage of new opportunities. They say the company committed “grotesque blunders” in failing to exploit its world-beating computer chip technology and needlessly handing control over PC software to Microsoft.
Robert Sobel, a business historian and author of two books about IBM, also says IBM’s current management should be replaced and that an outsider should be brought in to run the company. “IBM has operated on a paradigm from the 1960s, and it no longer works,” he said.
Shareholder groups are also pressing for change. The United Shareholders Assn. has called for a vote of IBM stockholders on proposals to increase the power of outside directors and separate the jobs of chairman and chief executive, as was done at GM.
“Whether Akers has to go is still an open question,” said Ralph Whitworth, the group’s president. “But we think it’s high time the independent members of the board live up to their responsibilities. Rome is burning and the independent directors continue to fiddle.”
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Institutional shareholders, including the powerful California Public Employees Retirement System, have sought meetings with IBM managers and directors to discuss the company’s plight, though they have stopped short of calling for Akers’ ouster. Two magazines--the Economist and Fortune--have been less circumspect, bluntly calling for Akers to resign in recent editions.
Yet IBM directors have given no indication that they intend to act. James E. Burke, a former chairman of Johnson & Johnson who is considered by some to be the strongest outside director, said in a published report last month that he remained firmly behind Akers.
IBM’s Losses
Quarterly and yearly earnings, in billions of dollars
1992 quarterly earnings
4th quarter: $5.46-billion loss
Annual net earnings
1992: $4.97-billion loss
Source: IBM, Tradeline, Associated Press
