IBM Corp shares plunged $5.50 to $72.50 as the company reported a stunning net loss after charges for the the third quarter of $2,778m and scepticism rose over the prompt promise in the analysts’ call after the announcemnet that the dividend is safe. Those standing by the IBM shares for the sake of the thumping 6% plus yield now recognise that the dividend is safe only so long as the present management team is in place – and few would gamble much now on John Akers and his cronies seeing the year out. At the operating level, profits were a mere 15 cents a share, down from 31 cents a year ago, where the most bearish analyst had been going for 30 cents a share, while the Street average was 79 cents a share. The most disconcerting news within the figures is that hardware sales in the quarter fell 9.9% To $7,000m – and that is in comparison with a 1991 quarter that was not exactly sparkling. Unable to find much to chirp about this time, chairman John Akers called the third-quarter results disappointing. The company blamed economic weakness in Europe, Japan and the US, and said it suffered from price pressure in its mainstay hardware lines, particularly in the personal computer segment. During the quarter, software revenues rose 11.3% to $2,700m and maintenance revenues rose 7.1% to $1,900m, while services revenues soared 38% to $1,800m, and rentals and financing revenues rose 11.3% to $1,200m, so that all the pain was in the hardware side, although the pressure to alleviate the software burden on customers is becoming irresistible. And while non-hardware businesses did grow, growth was bought dearly: costs and expenses for the third quarter soared 35.4% to $18,700m.

Mainframe sales to be down

During the quarter, gross margins fell to about 46.8% of total revenues in the third quarter, compared with 49.7% a year ago, and mainframe sales will be below year-ago levels, analysts said. IBM said that if necessary, it would hold off on its stock repurchase plan, in order to conserve cash to pay the dividend, and did not make any share repurchases in the third quarter. They spent a lot of time talking about the safety of the dividend and their cash flow, said Steve Cohen, a SoundView Financial analyst. Even if business remained lousy for the future, they still don’t see any risk to the dividend. IBM said on August 5 that its mainframe sales would be flat on a year-to-year basis and in mid-September, reiterated that view when Amdahl Corp reported sluggish demand for its new mainframes. Analysts say they expect tough mainframe comparisons in the fourth quarter because last year it launched the ES/9000s. PaineWebber Inc lowered its 1992 estimate to $4.00 from $5.30.In his statement, Akers said Our business was adversely affected by economic turmoil in Europe, particularly at the close of the quarter, and by persistent economic weakness in the US and Japan. The company’s finance chief Frank Metz told analysts that the picture was not going to be much brighter for the rest of the year: the year is probably not going to be as good as I thought it was going to be, he told analysts. In fact of course it will now take a miracle for IBM to record a profit this year after charges: it would need a fourth quarter as good as the stormer it turned in in 1990 for it to record even a slim net profit.