Another Bad Quarter, IBM Warns Investors
For the second time this year, International Business Machines on Thursday took the extraordinary step of warning investors that its business has weakened further and that quarterly sales and profits would fall far below those of a year ago.
Analysts said the picture painted by IBM shows that its computer business has gotten worse in the past three months and could require even deeper cuts in the company’s work force before year-end.
“This announcement underscores our worst fears about IBM,” said Robert Djurdjevic, a Phoenix technology analyst.
Noted Ulric Weil, a Washington technology analyst: “This is the worst quarter ever.”
The company blamed its continuing woes on a sluggish world economy, increased competition and its own product strategies.
Big Blue’s comments to a group of Wall Street analysts immediately led them to lower their profit projections for IBM’s second quarter to between $100 million and $200 million--a far cry from the $1 billion earned in the year-ago period. Quarterly revenue is expected to be more than 5% below the $14.2 billion posted in the prior-year’s period.
Although IBM said it expects its business to pick up in the last half of 1991, it labeled the chances of exceeding last year’s sales of $69 billion as “unlikely.”
On Wall Street, investors reacted by sending IBM stock down $1.75 per share to $99.25 in active trading. That’s about $40 per share below the issue’s post-crash high of $138.75 reached early this year.
The latest news from the world’s largest computer maker underscores the tremendous difficulty Chairman John F. Akers has encountered in his six-year campaign to refocus the company from the monolithic market giant of the mid-20th Century to a leaner, more aggressive competitor in the faster-moving 1990s.
The dismal profit forecast also helps explain why Akers last Friday reminded employees that each of them has a “deeply personal stake in (the company’s) declining market share, revenue and profits.”
In a memo to all employees, Akers noted that a “healthy level of concern and urgency, which I call tension, is essential for everyone in IBM.”
IBM has been trying to adjust its business--which depends heavily on sales of its huge, expensive mainframe computers--to the world’s increasing dependence on the less-expensive and ever-more-powerful desktop machines, such as personal computers and workstations.
Although the company has its own PCs and workstations, they were late to market and as a result have faced stiff competition and a significantly smaller market share than that enjoyed by IBM mainframes.
“IBM’s big product problem is that they are heavy where the market is worst, and they are light where the market is strong,” Weil said. “They haven’t anticipated the trends as well as they should have.”
At the same time, IBM, whose machines restrict their users to IBM software and other peripheral equipment, has been slow to embrace the growing movement toward so-called “open systems,” an approach that allows customers to mix and match purchases over a broad spectrum of compatible equipment from different makers.
In the first quarter of 1991, IBM reported its first-ever quarterly loss, a $1.73-billion deficit it blamed on the recession, Persian Gulf War and a new method of accounting for retiree benefits. Without the one-time charge for the new accounting method, IBM’s profits would have been $552 million for the quarter, still about half the level of the year-earlier period.
IBM startled analysts earlier this year by revealing that sales of its computer hardware--the mainstay of its business--fell more than 17% in the first quarter compared to the prior-year period.
And Thursday, IBM told analysts that the picture had gotten worse because there were no longer any strong performers in its product lineup.
Analysts said the continuing erosion of sales has prompted IBM to cut more from its worldwide work force.
IBM Profits Drop
2nd quater earnings per share 1986: $2.12 1987: $1.95 1988: $1.63 1989: $2.31 1990: $2.45 1991: $0.20-0.50 range
Source IBM
