The grinding recession that has burdened IBM’s US business is even beginning to get to that eternal optimist, the company’s chairman and chief executive John Akers. He started his address to the company’s annual meeting, held in Kansas City, Missouri this year on his usual upbeat note, declaring that In 1990, IBM’s performance strengthened. We began the decade with a year of solid growth. Revenues rose 10% to $69 billion with strong sales across all our product lines. Cost and expense grew only 8%. Our after-tax profit was $6 billion and earnings-per-share climbed 62% and 16% operationally. Our percent of industry profits increased. And we were, once again, the most profitable company in the United States. But late in the speech came the sombre part. As encouraging as 1990 was, 1991’s first quarter results were very disappointing, he addmitted. The war in the Gulf and economic dislocations worldwide have made the business environment we are dealing with increasingly difficult – not just here in North America, but now in Europe and Asia as well. During the first quarter, many customers worldwide deferred decisions and installations. We felt this fairly uniformly across our entire product line and across all geographies, but particularly in the United States and particularly in our large systems. How long this cautious approach by our customers will last is hard to tell. Our operating rates will improve only when our customers’ confidence about their businesses improves. While we’d like to believe economic recovery is just around the corner, we’ll have to wait and see. We have seen no evidence yet to indicate any improvement in the near term and consequently the year remains uncertain. Earlier, he had hailed IBM’s contribution to the Mother of all Excuses, saying that the strength of IBM’s industry leadership had been visible in important international developments. The triumph of the Coalition forces in the Persian Gulf was a proud moment for many nations. We can be proud of the role played by IBM. From service by IBMers called up from reserves, to vital support for production of the Patriot missile, flights of the Stealth Fighter, the B-52; indeed, in virtually every facet of our weapons systems and operations, IBM was there, and IBM came through. He went on to list IBM’s weapons for commercial battleground of the 1990s, starting with competitive products. As Henry Ford noted, it is not the employer who pays wages; he only handles the money. It is the product that pays the wages. The creation of the product. The sale of the product. The delivery. The quality.
Drawing board
The service of the product. That is why I believe the only products better than those IBM has in the marketplace should be the products IBM has on the drawing board. And, that is why we have invested $30 billion in the past five years, nearly 10% of all private research, development and engineering in America, to create the hardware and software for world-class products. Thanks to those investments, we have a strong hand to play – in personal computers, in workstations, mid-range computers, large mainframe systems and supercomputers and in the software and services that accompany them, he insisted, listing the major launches of 1990 and noting that big disk and tape drives scored a 30% plus growth in revenues. And despite the widespread perception that 1990 was a very poor year for the AS/400, Akers insisted that AS/400 revenues rose more than 25%, making it one of the industry’s most profitable and successful products. On the RS/6000, We set a new leadership standard, and the reception in the marketplace exceeded expectations with over 25,000 workstations purchased and more than a billion dollars in revenue. PS/2 revenues rose 9%. Our products in 1990 were better designed and built and at a faster rate, and they were better marketed and serviced, he insisted. The only thing that should exceed the strength of our products is the strength of our ability to market and support them. That strength must be reflected and reinforced by exc
ellence in our customer relationships. Excellence means we are so in tune with our customers’ needs that we not only read their requests, we can almost read their minds and we never rest in our obsession to satisfy and delight them. Not content with winning the Gulf War, IBM is also at the forefront of the economic disaster that its German reunification: Overseas, IBM Germany has been a key partner in the reunification efforts between East and West Germany.
Reunifying Germany
As an example, we’ve helped integrate and build up 180 savings banks in the East to West German banking standards by installing our 3090, the first high-end system in what was formerly East Berlin; installing our ES/9000 in Leipzig; and using these computer centres as the base to create a mid-range system network in the five new federal states. The project represents business volumes of about $100m for our company. IBM is delighting the Japanese too: We recently sent a team of IBMers from Rochester, Minnesota to IBM Japan to help support the AS/400 mid-range computer. Working together, they delighted their customers. In fact, the latest Nikkei poll of 20,000 Japanese computer users shows the AS/400 finishing first in the mid-range computer category. IBM, Akers says, is investing over $1,000m a year in education and retraining of staff. Software revenue rose 18% and generated about $10 billion of revenues, making IBM the leading software company in the world, Akers averred. Our new support services businesses grew by 30% and helped drive our total support services growth by 15% to more than $11 billion in revenue. Revenues for rental and financing were $3.8 billion in 1990 and grew by 33%. Highlighting improved efficiency as the third important pillar in the strategy for the 1990s, Akers stressed the need to be still faster, leaner and more agile. Toward that end, over the past five years, IBM has streamlined its employee population, sharpened its strategic focus and taken a number of steps to improve efficiency. By the end of this year, he said, we will have reduced our employee population by almost 50,000, eliminated nearly 70,000 staff positions, cut 8,000 managerial jobs and removed as many as three layers of management from areas of our business, all without compromising our full employment practice. Seven non-strategic businesses – satellite and PABX manufacturing, copiers, typewriters and small printers, education courseware, medical instruments and retail outlets have all been sold. We know these are difficult times for our industry, he concluded. We wish it were not so. But, the difficulties we’re dealing with reveal an IBM company that is strong, with the fundamentals to succeed and prosper in this industry, he declared.
