A fourth quarter operating loss of $45m – the first operating loss in its history – on an 11% slump in turnover, capped IBM Corp’s annus horribilis, leaving observers wondering what all the pain of the last three years has been for if all it has led to is this. To add to the gloom and misery, IBM told analysts in its conference call yesterday morning that the outlook for early 1993 is essentially unchanged from mid-December, when the company launched its latest round of restructuring actions. That means that a significant operating loss is likely for the first quarter. We have a volatile environment, Investor Relations Director James Clippard told analysts, characterising the outlook for the first few months of 1993 as unfavourable. Among the information given in the call, IBM said that the fourth-quarter gross profit margin, hit by weak mainframe computer demand, was just shy of 40%, but that the gross margin on hardware sales was below 35% in the fourth quarter – IBM once enjoyed gross margins of 60% on mainframes. Nor were mainframes the only offenders – as well as a pronounced decline in sales of high-end ES/9000s and storage systems, sales of the AS/400 were off more than 10%, and while new machines were just starting to ship in fourth quarter 1991, IBM would always in the past have expected a small improvement in a range that was meant to be still growing. Only the RS/6000 workstations managed any growth: even personal computers, which made a strong comeback during 1992, were down, although fourth-quarter sales came within a few percentage points of year-ago sales. Even software revenues fell in the fourth quarter, against analysts’ expectations – and IBM blamed this on the AS/400 fall-off in demand, and consequential drop in software sales.
Not acceptable
Although they are not improving the big picture, the cost-cutting measures are having some effect – fourth-quarter selling, general and administrative expenses and research and development expenses were both below year-ago levels. Geographically, revenues fell in the double-digit range in both Europe and the US and there was a single-digit percentage decline in Asia. Earlier, chairman John Akers had said Our financial results are not acceptable to us or our shareholders. We are taking aggressive actions to improve our competitiveness and profitability by addressing the accelerating changes that are sweeping our industry, while adjusting for weakened business conditions throughout the world. These actions include reallocating resources to growth businesses, increasing the autonomy of our businesses, and reducing costs. Research and development is now being concentrated on client-server computing, networking, RISC technology and multimedia, with marketing and services stressing consulting, systems integration and services. Non-hardware business was about 48% of the total in 1992, up from 43% in 1991. The split of business overall in 1992 showed sales down 9% at $33,755m; software up 5.8% at $11,104m; maintenance up 3% at $7,635m, services up 31.7% at $7,352m and rentals and financing up 11.9% at $4,678m. During the quarter, sales were off a shocking 20.1% at $10,966m – and IBM is implying that that will be no better this quarter; software was off 2%, maintenance was off 0.5%, service growth slowed to 17%, rental grew 7%.
