IBM cuts 25,000 jobs and casts doubt on dividend

Defying the mood of economic optimism in America, IBM announced a new round of cost cutting yesterday and warned investors it may not be able to continuing paying its quarterly dividend.

IBM, which shed 40,000 jobs last year, will let another 25,000 employees go in 1993, John Akers chief executive, told analysts after an extraordinary meeting of the company's directors.

To cover the cost of the redundancies, IBM will have to add dollars 6bn to the dollars 5.4bn of restructuring charges it has already sustained this year.

The job cuts, which will bring IBM's worldwide workforce to 275,000 by the end of next year, will save the company about dollars 1bn. Mr Akers said the world's largest computer maker planned to cut another dollars 1bn from its product-development budget for the coming year. The announcements, coupled with word that IBM's earnings for the traditionally strong fourth quarter would be in 'the break-even range', stunned Wall Street. IBM shares sank to 10-year lows and credit-rating agencies warned of a likely downgrading. By the close of trading on the New York Stock Exchange, IBM was off dollars 6 3/4 at dollars 56 1/8, roughly half its level of 18 months ago.

The news reached the US economic summit in Little Rock, Arkansas, where American president-elect Bill Clinton said the dollars 1bn decrease in product research and development was 'exactly the thing we don't want them to be cutting'.

But Mr Akers said IBM's plans to devolve into 13 more loosely-linked units, first announced a year ago, were on track. He added that he had no plans to resign.

He told the analysts' meeting yesterday that IBM would allow three of those units - including its Adstar storage systems and Pennant large-printer businesses - to operate independently, breaking out their accounting and preparing them for 'alternative forms of ownership'.

Industry experts expect IBM to spin off some portion of those units into separate companies this year.

IBM acknowledged for the first time yesterday that its difficulties had thrown into question two hallmarks of its traditional strength, its rich dividend - currently the equivalent of dollars 4.84 annually - and its commitment to lifetime employment for its staff. IBM did not make enough money to cover its dividend in 1991 and will not do so this year. Mr Akers was clearly unwilling yesterday to predict that per-share profits next year would match the payout.

While IBM has managed to cut its worldwide workforce by almost a quarter without resorting to layoffs, it has forced some intra-company transfers in the past three years.

Analysts warned that there remained considerable downside to IBM's share price in coming months, as recession gripped much of Continental Europe and growth continued to slow in the Japanese market.

'It's not enough for IBM that the US economy recovers,' said David Wu, computer industry analyst with S G Warburg in New York.

'IBM is an international economic bet, and unless you think the worldwide economy is about to pick up, no investor should expect progress from IBM,' he added.