IBM reeling after record loss of dollars 5bn

THE BIGGEST earnings collapse in corporate history continued yesterday, with International Business Machines reporting an operating loss for its traditionally strong final quarter on top of a dollars 5bn (pounds 3.25bn) loss for the year.

The fourth-quarter operating loss was dollars 45m, or eight cents a share, and came amid sharply lower revenues, notably in sales of computer hardware, which fell 20 per cent from the same period a year before. A dollars 7.2bn pre-tax charge for restructuring left IBM with a quarterly loss of dollars 5.4bn, or almost 10 cents a share, on turnover of dollars 19.5bn.

The figure for the year was the biggest annual loss ever reported by any corporation.

'Our financial reports are not acceptable to us or our shareholders,' John Akers, chief executive of the computer giant, conceded.

'We are taking aggressive action to improve our competitiveness and profitability.'

The restructuring charge brought to dollars 11.6bn the total IBM spent in 1992 on reducing capacity and shedding more than 40,000 jobs. The company's dollars 4.96bn loss for the year followed a dollars 2.86bn loss in 1991.

Total revenue for 1992 was dollars 64.5bn, compared with dollars 64.7bn in 1991, IBM's first year-on-year decline. Costs and expenses continued to increasing in the final quarter, rising 14 per cent to dollars 26.3bn.

The market value of IBM, which traded unchanged yesterday at dollars 49 1/2, has fallen almost dollars 80bn to dollars 27bn since 1987 as the sprawling global giant has struggled to compete in an increasingly fragmented industry.

Yesterday's results coincided with the market's expectations, which have fallen since mid-December when Mr Akers predicted 'break-even operating results for the quarter' and warned that the company could no longer assure its dollars 4.84 annual dividend.

Mr Akers restated the key elements of IBM's restructuring yesterday, stressing its commitment to break the company into 13 autonomous units, reduce staff by another 25,000 this year and concentrate on growth businesses such as client-server computing, networking and multimedia.

But the company added yesterday that outlook for 1993 was again 'unfavourable' as recession gripped Europe and Japan, which account for 60 per cent of its sales.

Sales fell in both areas last year - 'in double digits' in Europe and single digits in Asia - and it is almost certain that overseas revenues will decline again this year.

Industry analysts warn that operating losses will continue into 1993, with the company likely to report its worst operating results ever for the three months ending in March - IBM's weakest quarter even in a profitable year.

The slide in IBM's share price - now roughly half what it was a year ago - probably would not stop until then, David Wu, computer analyst with SG Warburg in New York, said.

In briefing analysts yesterday, however, IBM predicted that the benefits of its restructuring should begin to emerge in 1993, 'starting even in the first quarter'.

While sales of its mainframe computers were largely responsible for the 11 per cent decline in revenues in the last quarter, IBM's software sales also fell 2 per cent to dollars 3.2bn - a result that the company attributed to the poor sales of mainframe programs.

Personal computer sales staged a 'strong comeback', almost matching 1991's results, while revenue from computer services soared 17 per cent to dollars 2.4bn.

The poor year-end results are likely to bring renewed calls for Mr Akers' resignation. While he continues to enjoy the support of IBM's directors and no large institutional shareholders have openly questioned his leadership, he has been widely criticised in the business press and by some former company executives.

IBM's board is scheduled to meet next Tuesday in New York. Commentary, page 25