IBM failed to live up to analysts’ best expectations with its fourth quarter figures, just failing to make the $4 a share – the figure came in at $3.97 – against forecasts that had gone as high as $4.15. More seriously, without a $315m gain from change to the new accounting standard in the first quarter, net for the whole of 1988 would have been up just 4.4%, and 6.3% at the per share level because IBM has been buying in its shares. And that on turnover up 8%, so despite all the cost reductions – and extraordinary gains came close to cancelling out charges over the year – profits growth is still not keeping pace with turnover growth. Reflecting this, the shares reacted to the figures by shedding $1.25 to $122.50 immediately after the numbers appeared – although worse than expected US trade figures didn’t help. About 6,500 employees left the company under the consolidations, which should improve the cost structure some this year. Breaking down the figures, sales in the fourth quarter rose 10.3% to $14,264m, software business – that new software on the AS/400 is expensive – rose 15.5% to $2,283m, and support services rose just 2.1% to $2,496m – IBM is facing strong third party competition and is having to pass its own savings on increased reliability on to customers. That diminishing asset, the rental base, continues inexorably to diminish, and is likely to drop out as a separate item this year or next – in the fourth quarter it slipped another 6.5% to $604m. As for the year, sales rose 9.7% to $39,959m, software appears to have risen 12.8% to $7,926m – the figure was omitted from the AP Dow Jones report from which these figures are drawn – support services fell 0.1% to $9,285m, and rentals fell 7% to $2,699m. Non-US business in 1988 rose 15.5% to $34,400m and now accounts for an historically very high 57.6% of the total, leaving IBM very vulnerable to an appreciation of the dollar. And profitability in the foreign business also improved much faster than in the US – non-US net profit rose 23.3% to $4,100m before applying the SFAS 96 accounting change. Chairman John Akers is becoming a pastmaster at the bland non-commital comment to accompany the figures and this time declared that we have increased our efficiency significantly. The company is continuing to show improvement in our product line, our relationships with our customers and our financial performance. We are managing for the long term, and with the steps we are taking, we remain confident about the future of our business. Analysts who had been bullish before the announcement were nevertheless not too disappointed with the figures.
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