IBM Plans Cost Cuts to Put PC Unit Back in the Black

International Business Machines Corp. plans to slash more than $1 billion in costs this year to return its personal-computer unit to profitability in the third quarter, according to an internal memo.

The world’s biggest computer maker will cut expenses by selling more PCs directly to customers, reducing inventory at dealers and plants, and using more common parts to make different models, analysts said. IBM Senior Vice President David Thomas, head of the PC business, announced the goal in a memo to the unit’s 10,000 employees.

IBM declined to comment to reporters.

The PC unit has lost more than $1 billion in two years, spurring analysts and investors to call for IBM to get out of the business. Already this year, IBM has cut about 10% of the division’s workers and souped up its PC line to boost sales.

“Our business is more competitive than ever, but we must continue to drive cost and expense out and make it more efficient,” Thomas wrote in the memo. “Third quarter is when we return to profitability and strong revenue growth.”

IBM, one of the companies that sparked the PC revolution in the early 1980s, in recent years has focused more on software and the fast-growing business of installing and managing computer networks as PC profit fell.

The company has been working to boost overall sales, which fell 1% in the second quarter. The difficulties in the PC business have cut into revenue growth.

Cutting costs will be among Thomas’ last initiatives at IBM. The 28-year veteran is leaving the Armonk-based company Sept. 1 in the wake of Monday’s promotion of Sam Palmisano to president and chief operating officer.

The position raises Palmisano’s chances of succeeding Chief Executive Louis Gerstner, who has agreed to stay on until 2002, analysts have said.

Thomas, 52, had vied for the top spot with Palmisano, a senior vice president in charge of the server business, analysts said. “Sam was acknowledged as the better leader,” said Sam Albert, president of Sam Albert Associates, a Scarsdale, N.Y.-based consultant.

Thomas wasn’t available to comment.

Robert Moffat, 44, general manager in IBM’s PC unit, will assume Thomas’ role.

IBM shares fell $2.13 to close at $109.88 on the New York Stock Exchange.