IBM makes dollars 9bn restructuring charge: Computer giant cuts another 35,000 jobs as second-quarter loss soars to dollars 8bn

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The Independent Online
THE full-scale rebuilding of IBM took another big step yesterday when the computer giant announced an dollars 8.9bn ( pounds 6bn) write-off and the elimination of 35,000 more jobs, most of them outside the US.

The huge write-off - which it said would be its last - follows dollars 11.6bn in charges in the second half of 1992. It will fund the closure of six mainframe manufacturing plants.

Compounding an operating loss of dollars 40m, the charge left IBM with an after-tax loss of dollars 8bn for the second quarter. A year earlier, it posted its last quarterly profit of dollars 734m.

While IBM's new chief executive, Louis Gerstner, was expected to use the results to clear the decks for a reorganisation of the company, both the charge and operating loss far exceeded Wall Street's expectations. The workforce, once more than 400,000, should be down to 225,000 by the end of next year, saving dollars 4bn annually, or about 10 per cent of its current overheads.

'If our assumptions prove correct, we believe we will be able to absorb, without resorting to additional special charges, the costs associated with any future productivity improvements,' Mr Gerstner said.

He ruled out a break-up of IBM, the most widely prescribed solution to the company's problems. He had come to the conclusion that IBM's ability to offer customers integrated computer systems, including hardware, software and services, was IBM's greatest strength. 'We are going to continue to be the only full-service provider in this industry,' he said, saying predictions of the death of the mainframe computer were 'ludicrous'.

Investors, apparently confident the worst was finally over, pushed IBM's share price up despite another deep cut in their quarterly dividend from 54 to 25 cents. By midday in New York, IBM shares regained most of the ground they have lost in recent weeks, rising dollars 2.75 to dollars 45.125.

But some industry specialists and the two big US debt-rating agencies were more hesitant. Standard & Poor's said there remained considerable uncertainty about how business conditions would unfold in the next 18 months.

More than two-thirds of the huge charge is to cover severance costs of 35,000 people, an average charge of more than dollars 171,000 per employee.

IBM's British subsidiary, which has already made 2,200 people redundant, said further cuts could not be ruled out. Nick Temple, chief executive of IBM (UK), said: '(We) will take action if necessary to ensure that we return to profit in the UK.'

The UK company's annual report for 1992, released yesterday, showed a pre-tax loss of pounds 767m, compared with a 1991 loss of pounds 124m.