I.B.M. Set To Close 5 Factories

By Barnaby J. Feder
The New York Times

June 30, 1988

The International Business Machines Corporation said yesterday that it would phase out manufacturing at five domestic factories and further reduce its headquarters staff.

In the next 18 months, the headquarters staff in Westchester County is expected to be cut by several thousand employees.

I.B.M. said 10,000 of its 228,000 domestic employees would be affected by the changes. Based on experience, it said it expected 3,000 to 4,000 of them to retire rather than accept transfers.

The changes, which were larger than expected, are likely to cost about $600 million, which will be charged against earnings in the current quarter. The impact on I.B.M.'s quarterly earnings will be largely offset by the adoption of a new accounting standard for deferred taxes, I.B.M. said. I.B.M. shares finished the day on the New York Stock Exchange at $127, unchanged.

Manufacturing Advances Cited

Terry R. Lautenbach, who was appointed general manager of IBM United States in January's reorganization of the computer giant into five major operating groups, said the decision to close five factories ''does not reflect the level of demand for any of our products.''

Rather, he said, the consolidation ''was driven by advances in manufacturing technology and product design that allow us to be more efficient.''

The manufacturing changes will not eliminate all I.B.M. operations in any community, but they will reduce the number of manufacturing sites in the United States to 14 from 19.

The Main Losers

The main losers will be Boca Raton, Fla., home of I.B.M.'s personal computer operations, and Tucson, Ariz., where I.B.M. has manufactured disk drives for its larger computers. In Austin, Tex., and Santa Clara, Calif., manufacturing operations that are being ended will be shifted to nearby locations. In Brooklyn, a manufacturing operation will be replaced by a diagnostics and service center.

I.B.M. said that its new products required fewer microchips and other components, making it easier to assemble them quickly and test them. Modern production lines are also more flexible, allowing individual plants to react more quickly to changes in demand. And today's computer-controlled manufacturing techniques, which tie together such tasks as purchasing and production, create opportunities to cut inventories and overhead.

Analysts generally agreed with I.B.M.'s analysis and praised the moves announced yesterday. But some said it was not entirely accurate to portray consolidation as the result of the benefits of new technology.

''I wouldn't read anything into this about how particular products or executives are doing at the moment, but it has to be seen as the latest of a series of actions emanating from mistakes in the early 1980's,'' said Stephen Cohen, who follows I.B.M. for the Gartner Securities Corporation in Stamford, Conn. ''They overinvested then. Now their sights are lower and it is natural to reduce capacity.''

In terms of personnel, the impact will be smaller than that of the streamlining program announced in 1986 that resulted in 15,000 retirements and 21,000 job moves.

Savings of Hundreds of Millions

Peter Labe, who follows I.B.M. for Drexel Burnham Lambert Inc., said, ''This will mean savings of hundreds of millions of dollars annually in years to come and is more aggressive than I expected.''

Some of the savings will come from the continuing drive to decentralize. In addition to the changes in manufacturing, several thousand jobs will be shifted to other locations from Westchester County, where I.B.M. has its corporate headquarters in Armonk and numerous other corporate facilities nearby.

The plan calls for production of the Personal System/2 personal computer line to be shifted gradually from Boca Raton to Raleigh, N.C., where a highly automated plant already makes several lower-cost PS/2 models. PS/2 development and marketing operations will remain in Boca Raton. I.B.M. had invested millions of dollars in manufacturing facilities there and has frequently showed them off to visitors in its efforts to publicize its personal computers.

Dispute Over Florida Tax

But, according to analysts, I.B.M. has steadily cut back its commitment to the Boca Raton complex in recent years after squabbling with Florida over its unitary tax policies, which had the impact of taxing I.B.M.'s Florida operations on the basis of the company's worldwide earnings.

Computer storage product manufacturing will move from Tucson to I.B.M. plants in San Jose, Calif; Charlotte, N.C., and Poughkeepsie, N.Y. Research and development operations will remain in Tucson.

Telecommunications systems and manufacturing operations in Santa Clara and Austin that I.B.M. inherited when it acquired the Rolm Corporation are being consolidated with nearby I.B.M. production lines in San Jose and Austin.

I.B.M. also shuffled responsibilities at two other sites. Some assembly operations will be moved from Toronto to Charlotte and Austin, while software development work will be stepped up in Toronto. And assembly operations in Brooklyn, which have employed about 350 people, will be replaced by diagnostic and servicing work that has been scattered around numerous manufacturing sites.