View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
January 7, 1988

COST REDUCTIONS SHOULD IMPROVE IBM MARGINS BUT ANALYSTS WORRY ABOUT SALES

By CBR Staff Writer

IBM is inescapably assuming the image of a mature, slow-growth company that can improve profits substantially only by reducing overheads and becoming as efficient in administration as it is in manufacturing. Reuters writer Lawrence Edelman has been doing the rounds of analysts who follow the company, to find a consensus that so much was poured into the fourth quarter that the company will be able to report an up 1987 next week, but that sales growth will look very dull, and will be followed by a 1988 of improving profits but slow growth. The profit growth for the fourth quarter is expected to have been achieved largely by cost cutting, lower taxes and favourable currency translations, with sales growth ininspired. Let’s not shout to the hills that the Messiah has come, Ulric Weil told Reuters: he expects net profits for 1987 to lie between the $7.81 a share achieved last year and the $10.77 a share in 1984, the company’s best-ever year. The real worry is that IBM’s woes have come at a time when its closest rivals – DEC in minis, Apple in micros, Amdahl and the Japanese in mainframes – have all been prospering. The average forecast of all the analysts who follow IBM is for $3.52 for the fourth quarter, up from $2.28 this time last year, bringing the total for the year to $8.77 – but without the special factors, particularly the benefits of the early retirement programmes and the weakness of the dollar, there is a widespread feeling that 1987 would indeed have been another down year. On turnover, Jay Stevens of Dean Witter Reynolds estimates turnover growth of 7% to $53,760m. As for this year, sales growth is expected to be very modest, but as the cost cutting measures really work through, profits could grow substantially, with per-share earnings up 17% to $10.26, reckons Kidder’s William Easterbrook. Further staff reductions And on top of annual savings from the early retirement plans estimated at $500m to $700m, IBM is widely expected to go for further staff reduction measures this year. On the plus side, there is widespread, but perhaps misplaced, optimism that the forthcoming Silverlake successor to System 36 and System 38 will bring a big boost to IBM’s fortunes, but two factors militate against this. The first is that Silverlake now does not look likely to start shipping until the second half of the year at the earliest. Also, IBM salespeople have been so lukewarm for so long about the attractions of the System 38 against the 4381 and other 370-type machines that a big campaign to move System 36 users onto the new machine – which anyway will likely run their software much less efficiently than that of System 38 – is likely to be seen as unconvincing by many customers. And the inevitable hiatus created by the need to move users onto Silverlake will be seized by all IBM’s low-end competitors, and may well make the System 36 base as much of a happy hunting ground for competitors as was the old System 3 base in the 1970s, when ICL with the 2903 and Univac with the 90/30 won more business from defecting System 3 users than from their own customers.

And before a reasonably happy outcome for 1988 comes into view, there is likely an extremely poor first quarter to be absorbed: all the signs are that IBM moved borrowed substantial first quarter 1988 mainframe business to buoy the 1987 year-end.

Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.
THANK YOU