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Computer Giant's Profit Declines 7.7% in Quarter

July 15, 1986|DONNA K. H. WALTERS | Times Staff Writer

International Business Machines said Monday that its profits fell 7.7% in the second quarter and 3.2% for the first half of the year--a sign of the company's continuing vulnerability to the sluggish economy.

The results were below analysts' expectations and generally were blamed for the gloomy day on Wall Street. IBM's stock fell $3.87 1/2 a share to $139.25; it was the most heavily traded issue on the New York Stock Exchange and led the way to the nearly 28-point loss among the Dow Jones 30 industrials.

In announcing the results, IBM Chairman John F. Akers said they "reflect a continuation of the business slowdown" and he warned that "it will be difficult to show earnings growth in 1986" unless there is a pickup in capital spending.

The giant Armonk, N.Y.-based computer maker, the fifth-largest company in the country, said that for the quarter ended June 30 its net earnings were $1.3 billion, down from $1.4 billion in the year-ago period. Sales during the quarter were nearly $12.3 billion, a 7.3% increase from the 1985 second quarter.

For the first six months of the year, IBM earned $2.3 billion, down from $2.4 billion for the first half of 1985. Revenue during the half totaled $22.4 billion, a 5.6% increase from year-ago sales.

IBM has been openly cautious about its earnings prospects since late last year, warning that although international sales were continuing to grow, the domestic outlook was grim. In numerous appearances in the past seven months or so, Akers has repeated the company's worries, in virtually the same words: uncertain North American economy, sluggish capital spending and a cautious outlook.

Since the beginning of the year, many analysts have been readjusting downward their estimates of the company's net income. Even so, many of them have continued to predict annual growth rates of as much as 10% for the company, in anticipation of a strong second-half upturn. IBM's first-quarter profit was a 3.1% increase from the first three months of 1985, but even that was a disappointment to investors and analysts.

The slowdown in the computer industry's growth, which has persisted for more than a year, has been tied to the languid rate of domestic capital spending. As companies tighten their belts, they also have been shelving plans to add or expand computer systems. IBM, because it dominates almost every segment of the industry--especially mainframes and personal computers--is considered a bellwether for the industry.

Akers said that although "worldwide orders and shipments were below the levels of last year's first half . . . demand for large processors and storage devices is firm."

Generally flat sales and declining earnings have brought increasing pressure on the large manufacturers of computers, and many have continued cutting back employment and facilities; most recently, Wang and Hewlett-Packard have announced voluntary staff reduction programs.

Akers' statement also said: "We continue to manage our business prudently and control costs, expenses and resources. While decreasing our overall U.S. work force through attrition, we also are redeploying more people into our domestic marketing organization. . . . We are confident about the future growth of the information industry and IBM's participation in it."

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