In just a few days – on the 27th of this month, to be specific IBM Corp will disclose its financial results for the second quarter of the year. It will be the company’s first quarter under chairman Louis V Gerstner Jr. Gerstner was officially hired at the end of the first quarter, after what seemed like an interminable search and an enormous amount of ultimately pointless speculation. Since taking the position, Gerstner has been as silent as an American Vice-President. His only big public outing to date was IBM’s annual meeting. Presumably, Gerstner’s silence is that of the studious. He may be trying to figure out what’s what at IBM before opening his yap, thereby reducing the chance that he might insert his foot in said orifice. Such circumspection has been common but not universal among those at IBM’s helm. Even in the trying recent years, IBM’s leader saved both his left feet for missteps and the occasional self-inflicted gunshot wound. The former chairman’s mouth functioned officially as a source of portentous corporate proclamations (such as You’re fired. Put an egg in your shoe and beat it), and the occasional augury (such as Prosperity is just around the corner), which in the case of Akers’ successor turned out to be touchingly accurate. Loquacious or not, Gerstner will be held accountable for IBM’s accounting. If customers, employees and investors cut him some slack for the second quarter – which they by all means should – they will not be so tolerant of the present period. And by the telling fourth quarter, if not sooner, Gerstner’s fate and that of IBM will be inextricably connected.

Employees made former

Gerstner must soon make decisions about IBM’s dividend, which could be further cut, IBM’s payroll, which could be further cut, IBM’s manufacturing capacity, which could be further cut, and IBM’s next round of borrowing. This last item will of course not be cut and, according to government filings, it is slated to be enormously enlarged. At home, not only IBM but also its IBM Credit Corp subsidiary have cleared the way for a fast run at the debt markets. We suppose that the corporate treasuries in IBM’s other key outposts have made similar preparations, known in the States as shelf registrations. Shelf registration is the financial equivalent of microwave meals: all the ingredients are prepared and the cooking awaits only the application of energy in the form of investment bankers’ commissions. IBM has already begun the fundraising process with a $1,800m bit of leger-de-leverage and a $1,100m offering of preferred stock. Other details of the company’s plans have not yet been formally announced. But trial balloons, in the form of stock analysts’ public ruminations, have been flown over Wall Street. Dan Mandresh, the Merrill Lynchpin who often gets his numbers right, reckons that 25,000 to 30,000 additional antihirings and $5,000m in severance and plant closing costs ought to do the trick for 1993. It is part of the latter component, $2,000m of the $5,000m in expenses, that will affect IBM’s appetite for cash. The $2,000m would go to employees made former. The remaining $3,000m off IBM’s balance sheet would be an accounting adjustment as plants become empty buildings. There is not much Gerstner can do about his company’s situation that might alter the immediate outcome of events long since set in motion. But even now he had best reach out to those most affected by IBM’s struggle, and who are in desperate need of care. – Hesh Wiener (C) 1993 Technology News