IBM's shake-up causes dollars 2.8bn loss for quarter

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The Independent Online
SHARES in IBM took a beating on the New York Stock Exchange yesterday after the computer giant stunned the market by reporting a dollars 2.8bn ( pounds 1.7bn) loss for the quarter ended 30 September.

The huge loss stemmed from a special dollars 2.9bn charge for capacity and workforce reductions which included a voluntary redundancy plan as part of a programme to streamline the company and raise efficiency.

But even before the special charge, operating profits for the quarter were well below the forecasts of Wall Street analysts, with net earnings coming in at dollars 86m compared to dollars 177m in the third quarter of 1991.

IBM's chairman, John Akers, said that the company's business had been adversely affected by the economic turmoil in Europe, particularly at the close of the quarter, and by persistent economic weakness in the United States and Japan.

In addition, hardware profits continued to be affected by downward price pressure, especially within the personal computer line. Computer sales fell by 9.9 per cent to dollars 7bn during the three-month period compared with the third quarter in 1991.

On a more positive note, revenues from software rose by 11.3 per cent to dollars 2.7bn, while income from services rose by 38 per cent to dollars 1.8bn. Worldwide third quarter revenue grew to dollars 14.7bn, up by 1.8 per cent compared with the same quarter in 1991.

Investors reacted to the poor results with significant selling of IBM shares. They dropped to dollars 72.50 during the morning session from the Wednesday close of dollars 78, causing a strong downward drag on the Dow Jones Industrial Average. IBM stock has traded as high as dollars 104.75 during the past 12 months.

IBM is in the midst of a major overhaul to cut bureaucracy and make it faster-moving and more competitive in the current cut- throat computer manufacturing environment.

As part of this process last month it announced the splitting off of a separate unit, the IBM Personal Computer Company, which will operate in the highly competitive personal computer market. A fierce price war in the PC industry is putting pressure on the profitability of most manufacturers.

On Wednesday, Digital Equipment Corporation, the second largest US computer manufacturer, reported a loss of dollars 260m for the three months to 26 September. Digital cut 5,300 jobs during the quarter, and will lay off even more staff during the current quarter.

But even though Digital's losses were worse than expected, its shares rose as investors appreciated the speeding up of cost-cutting measures.