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IBM Chalks Up 4th-Quarter Profit, but '93 Loss Deepens : Computers: Cost cutting is credited, but some analysts say company has a long way to go to put its house in order.

January 26, 1994|JONATHAN WEBER | TIMES STAFF WRITER

NEW YORK — IBM on Tuesday reported its first quarterly profit in more than a year, a sign that its cost-cutting measures are kicking in, but analysts said the computer giant still has a long way to go in shedding its troubles.

International Business Machines Corp. earned $382 million, or 62 cents a share, for the fourth quarter, a sharp improvement over the $45-million operating loss posted for the comparable period a year ago.

But that still left the company with an $8-billion loss for the year, worse than its 1992 loss of $6.9 billion.

Revenue for the quarter totaled $19.4 billion, down a fraction. For the full year, revenue slipped 2.8% to $62.7 billion.

IBM has been unable to manage the rapid technological changes in the computer business, especially the dramatic shift away from large, expensive computers based on proprietary designs and toward cheap, generic and ever more powerful personal computers.

The company has been in a crisis mode for several years. A massive cost-cutting campaign has eliminated 45,000 jobs over the past year, many through the company's first-ever layoffs. IBM's payroll now stands at 256,000, down from more than 400,000 in the late 1980s.

The improved fourth-quarter performance shows that the cost-cutting program is beginning to bear fruit. But the results fell short of Wall Street's expectations, and IBM shares fell 37.5 cents to close at $58.25 on the New York Stock Exchange.

The stock traded as low as $55.375 Tuesday but rallied after Chief Financial Officer Jerome York gave analysts an upbeat assessment of prospects for the first quarter of 1994.

Many analysts continue to question the technology strategy being pursued by Chairman Louis V. Gerstner Jr., the computer industry outsider who took charge of the company in March.

Gerstner, explicitly rejecting any grand "vision" and all suggestions that he break up the company, has focused instead on "re-engineering" the firm to make all its processes more efficient.

"They're in terrible trouble, and it's getting worse," said Charles Morris, co-author of Computer Wars, a book documenting IBM's decline. "Re-engineering is fine if you know what it is you want to do," he said, but IBM continues to invest heavily in dead-end products rather than remaking the company around a few key, cutting-edge computer designs.

Morris noted that a growing portion of IBM's business is in supplying components such as computer chips and disk drives, which carry far lower profit margins than complete computer systems. He predicted that the company will face a serious cash crunch next year as the bills for severance payments come due.

There are some bright spots. Many analysts say IBM has done a good job of turning its personal computer business around. Richard Shaffer, principal of Technologic Partners, said IBM's PCs have become price-competitive and that its Thinkpad portable machines are top-notch products.

Mark Stahlman, an IBM watcher who heads New Media Associates in New York, calls IBM "a completely new company" that has successfully jettisoned its old culture and now stands poised to take advantage of strong PC and workstation technologies.

And Bob Djurdjevic, a former IBM manager who heads Annex Research in Phoenix, gives Gerstner a "B-plus" for his overall performance.

But others note that the large-computer business continues to decline. Some other companies reliant on large machines--notably Digital Equipment Corp.--are still struggling despite radical turnaround efforts.

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