Even ever-optimistic IBM Corp chairman John Akers can’t pretend that last year didn’t happen, and in the 1991 annual report, he concedes that Even after taking into account the effects of war and recession and a recession-weakened global economy, we did not achieve the results we wanted. IBM’s annual report is at the galley stage and will be mailed to shareholders any day now. The first striking number to jump out of the report is that working capital at the end of 1991 plunged to $7,345m from $13,644m a year earlier, and long-term debt rose to $13,231m from $11,943m, for a debt to equity ratio of 36%, up from just under 28% a year ago. Short term debt rose by $6,100m. That is still a very conservative figure, but the plunge in working capital implies that IBM is going to have to borrow a lot more this year, implying a further weakening of the balance sheet. IBM knows shareholders’ priorities only too well, and so its question and answer opens with Is the dividend in any danger of being cut? to which the response is We have no plans, nor do we see any need, to cut the dividend. After saying that it is possible to increase market share and manage for profitability at the same time, the company puts the full employment policy firmly on the line, saying that employment is intrinsically connected to individual performance and business success, and that if further significant reductions are required, we will reassess full employment and do what is best for IBM.
Banana republics
Looking at the business around the world, US business declined a full 9.9% to $24,400m and international business became even more important to the total, falling 3.6% to $40,400m. Even worse, outright sales in the US plunged 20.7%; overall, sales were off 15.6% to $37,100m. Total turnover in Europe fell 4.4% to $26,974m; Asia Pacific fell 1% to $10,951m, and only the Americas grew, by 32.5% to $8,883m, mainly as a result of exports from the banana republics. Revenue from processors declined 9.0% to $14,954m, with lower than expected increases for smaller ES/9000s and for the AS/400 – which implies a slump at the top end. PS/2 business fell 11.8% to $8,505m and other workstations fell 21% to $3,216m, which means that the growing RS/6000 business failed to make up for a big fall in 3270-type terminal business, where IBM complains of pricing pressures. Disks and other storage products were a disaster area, plunging 19.9% to $7,284m. Advanced function printer revenue fell 20% to $1,010m. Other peripherals were down 22.8% at $2,284m. Software rose 5.7% to $10,524m, maintenance grew 3.0% to $7,414m, suggesting that IBM might, after all, finally meet its target of software reaching 30% of total turnover – but not in the way the company imagined! In the US alone, the decline in hardware is in line with the group total, but software in the US grew only 3.5% to $3,767m, and maintenance actually fell a smidgen in the US to $2,884m. Federal Systems was barely changed at $1,952m. IBM’s overall gross margin was 49.9%, a fall of 5.6 percentage points. Sales margins were down 7.0 points and even software was less profitable, falling 5.5 points to 63.1%, and selling, general and administrative expenses rose 19.4% to $24,700m – so much for IBM’s cost-cutting, although it puts most of the rise down to the costs of restructuring.
