Further pointers that the computer market is slowing down came with IBM Corp’s third quarter figures, announced on Friday. The company reported net profit up just 3.2% on worldwide turnover up only 5.3%, representing a sharp slowdown on the first two quarters of 1988, and dragging the nine-month growth down to 7% for turnover, and 9.1% for net profit. The best gloss the company was able to put on decidedly disappointing figures was that earnings, shipments and revenue in the third quarter of 1988 were higher than those of a year ago – which they certainly should be in what has been billed as a year of sustained recovery. We are pleased with our customers’ response to our recently announced products and services, said chairman John Akers. Worldwide demand is strong across our product line, and this marks the seventh consecutive quarter that revenue and shipments surpassed prior-year levels, he added, and the fact that the figures were still up was enough to put $1.375 on the share price to $119.875 in early trading Friday in a market generally firm following the perception that Democratic nominee Mike Dukakis had blown his last chance to swing the election in the debate the previous night. The after-tax margin was 8.9% for the first nine months of 1988, compared with 8.8% for the same period in 1987. Moreover pre-tax profits are actually down by 2.7% on those for a year ago at $5,182, for margins of 13.4% this time against 14.7% for the first three quarters of 1987. The year-to-date 1988 net figures include the cost of the previously announced manufacturing and headquarters consolidations but also the benefit of implementing Statement of Financial Accounting Standard 96, which largely offsets consolidation costs. Breaking down where the $13,396m business is coming from, the company says that outright sales were up 7.1% at $9,036m; the price war IBM is conducting against the third party maintenance shops caused its maintenance business to fall 6.1% to $1,772m; program products grew 12.3% to $1,818m and rentals and other services dipped 2.2% to $770m. Every figure except the last represents a deterioration over the performance for the first six months of the year, the slowing of growth in the previously bustling software business being the most striking. Remembering that 1987 was not a sparkling third quarter and that IBM threw everything including the kitchen sink in to save the fourth quarter, it is hard to see what more the company can do to pull the fourth quarter out of the fire. Nevertheless, John Akers felt confident enough to say We continued to add function and improve price performance throughout our product line during the third quarter. This continuous stream of new products and services and our ongoing drive for greater efficiency are making IBM still more competitive. The results we have announced today demonstrate the soundness of the course we have set for IBM, so he doesn’t sound too worried.
