IBM back in profit but results fail to impress

INTERNATIONAL Business Machines' year-end results failed to include the pleasant surprise many investors had apparently been banking on. IBM yesterday turned in a predictable profit thanks largely to cuts in the corporation's huge payroll.

IBM shares tumbled on the news, after a strong run-up in their price on Monday.

The company's fourth quarter profit, dollars 382m or 63 cents a share, was its first in almost two years, but came in a period that usually accounts for more than a third of IBM's annual business. And while the earnings per share were within a penny of Wall Street's average estimate, analysts expressed concern over declining year-end revenues, which slipped to dollars 19.4bn from dollars 19.6bn.

Computer industry analysts were counting on an increase in turnover, to perhaps as much as dollars 20bn during the quarter.

Revenues did, however, increase 7 per cent in the US and decline only 1 per cent in Europe. The results also suggested that IBM's new management has been able to arrest the precipitous slide in its gross profit margins, and even reverse it.

After falling from 55 per cent to 38 per cent, margins widened slightly during the final months of 1993 to 38.2 per cent, defying predictions that they would narrow another two points.

Investors, however, had bid up IBM's share price in recent weeks, anticipating some sign that Louis Gerstner, the new chief executive who replaced John Akers a year ago, had done more than simply staunch the computer maker's losses.

Despite disappointing performance among other computer companies that have already reported on the quarter, previews of the IBM results that appeared in the US business press dwelt on some of the more optimistic analysis, and reported strong buying by a large American mutual fund group, Fidelity.

The reports helped push up IBM's share price almost dollars 31 2 on Monday to dollars 585 8 , only to fall back dollars 25 8 on the news yesterday. While the share price ended with a net gain, several analysts said yesterday they would lower their 1994 earnings estimates following the announcement.

The quarter-on-quarter improvement is almost completely attributable to cost-cutting, notably the layoff of another 45,000 IBM employees during 1993. It is still premature to judge Mr Gerstner's success in rebuilding the ailing computer giant, they said.

IBM said yesterday it planned to lay off another 30,000 workers this year, as part of its planned cuts. This would save an additional dollars 3bn in operating expenses for the year.

A year ago IBM lost more than dollars 5.4bn, or almost dollars 10 a share, as a result of a huge restructuring charge. To make matters worse, the company reported an operating loss of dollars 45m during its peak earning period.

The most recent results leave IBM with a record loss for 1993 of dollars 8.1bn, or dollars 14.02 a share, the result of Mr Gerstner's decision to take a huge dollars 8.9bn charge in the second quarter to make a clean sweep financially. For the full year 1992, IBM lost dollars 5bn, or dollars 12.03 a share.

Among other figures included with yesterday's announcement are hardware sales down 5.4 per cent to dollars 10.37bn, software revenues down 3.8 per cent to dollars 3.07bn, maintenance revenues down 4.8 per cent to dollars 1.81bn and service revenues up 32 per cent to dollars 3.16bn.

IBM pointed to record PC sales of 1.6 million units in the fourth quarter, against 1.4 million a year earlier.