IBM shares soar as dollars 689m profit surprises market: Results seen as pay-off from restructuring

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The Independent Online
INTERNATIONAL Business Machines continued a comeback in the second quarter, surprising the market with profits of dollars 689m (pounds 456m), as the results of restucturing and cost-cutting filtered through.

The profit figures were about 50 per cent ahead of market expectations, and shares soared on the New York Stock Exchange, single-handedly pushing up the Dow Jones Industrial Average. By closing, 8.8 million shares had been traded and stock was up dollars 6.50, at dollars 623 8 , from the Wednesday close.

The results are being seen as a faster-than-expected pay-off from IBM's restructuring efforts, which involved laying off thousands of employees, streamlining its operating divisions, and broadening its product base. For the second quarter of 1993, IBM posted losses of dollars 40m, before a huge one-off restructuring charge of dollars 8bn.

Second-quarter revenues stood at dollars 15.4bn, an increase of 3 per cent over 1993, after adjusting for the sale of IBM's Federal Systems Company. Demand for high-end mainframes exceeded supply in the second quarter, but revenues fell as a result of price reductions. In the personal computer market, US results were sluggish although revenues increased due to strong sales internationally. Total software revenues were flat. The company expects second-half sales growth to be better than the 3 per cent figure for the second quarter.

Analysts were impressed by the profitability of the core computer businesses, even if this was achieved with only stable or slightly increasing sales figures.

IBM had originally stated a goal of reducing its 1992 expense base by dollars 7bn before 1996. However it announced yesterday that, as of 30 June 1994, it had already reduced expense levels by dollars 4.8bn, and was now increasing its cost-reduction target to dollars 8bn.

'I'm pleased with our continued progress,' IBM's chairman, Louis Gerstner, said, pointing to the sharp decline in expenses and stable gross margins. 'We are still far from where we need to be, but we are showing steady improvement.'