IBM's $5 Billion Loss Highest in American Corporate History

By John Burgess
The Washington Post

January 20, 1993

Disclosing new details of a tailspin it has not been able to arrest, IBM said Tuesday that it lost $5 billion in 1992, more than any U.S. company has ever lost in a single year.

The company that once ranked with America's most unshakable employers and Wall Street performers left little hope its fortunes would turn around soon. In a statement, Chairman John Akers warned that "difficult problems remain ahead."

IBM, which employs 300,000 people worldwide, is struggling to contract its work force, find new products and fend off competitors that for years it did not take seriously.

Its problems have been compounded by worldwide recession in recent months. Tuesday, it said that sales of its machines had declined 20 percent in the October-December quarter.

IBM's loss for 1992 eclipsed the $4.45 billion record loss that General Motors Corp., another industrial giant fallen on hard times, had set the previous year.

"It's very ugly," said First Boston Corp. analyst Curt Rohrman of IBM's plight.

For the October-December quarter, IBM lost $5.5 billion. Most of that loss was from special multibillion-dollar deductions taken to finance early retirements, production-line shutdowns and other steps in its restructuring program.

But significantly, IBM also said its lost $45 million on day-to-day operations in the quarter, the first time that revenues have failed to cover operating expenses.

For the year, the Armonk, N. Y.-based company, known formally as International Business Machines Corp., lost $4.97 billion on sales of $64.5 billion. That compared to a loss of $2.86 billion in 1991, when sales were slightly higher.

IBM executives have blamed the recent acceleration of their company's decline on collapsing sales in Europe and Japan as recession takes hold there. IBM Deutschland, its German subsidiary, said Tuesday that it would post its first loss in 1992.

IBM's long-term decline, analysts said, is due not to market quirks but its failure to keep up with one of the world's fastest-changing industries. As competition heightened and customers switched to small, desk-top units, IBM continued to maintain huge bureaucracies and rely for profits on sales of big systems.

Akers said the financial results "were not acceptable to us or our shareholders. We are taking aggressive actions to improve our competitivness and profitability by addressing the accelerating changes that are sweeping throughout the world."

But he added that the company still faces "the continued pace of change in our industry and weak worldwide business environments. Nevertheless, we are confident that we are on the right path."

Wall Street's response was muted. In the day's trading, IBM stock fell by only $1.12, closing at $48.37. Analysts attributed the subdued response to the fact that IBM had let out most of the bad news in December.

"Everything is as bad as advertised," said David Wu, computer analyst at S.G. Warburg, "... The shock was last month." IBM stock was trading in the mid-60s then, and quickly lost more than $10 a share.

In December, Akers said IBM was suffering larger-than-expected losses and would cut its work force by another 25,000 in 1993 to reach the 275,000 range. Executives said Washington area operations, which focuses on still healthy federal business, should feel minimal impact, however.

At its peak in the mid-1980s, about 400,000 people worked for the firm, many of them feeling it was a lifetime commitment.

IBM said sales of its core product line, huge mainframe computers used by large institutions such as banks and government agencies, declined by 12 percent in the October-December quarter. But, noted Bill Milton, an IBM watcher at investment banking firm Brown Brothers Harriman, "the weakness extended well beyond mainframes."

Sales of its mid-sized AS/400 machines, normally a rare bright spot in the company's product line, were down, as was software. Services revenues grew at 17 percent, a lower rate than in past quarters.