IBM is to take a $2,300m hit against fourth quarter profits to cover the cost of its latest – and widely-forecast restructuring, but details of the plan had not been published by the time we closed. This time, the company is looking to shed 10,000 US employees by the end of next year by enhanced attrition and restricted hiring. By attrition, IBM does not simply mean people leaving the company and not being replaced: there will be incentives for voluntary redundancy but details of these were not given. The company plans to eliminate positions in manufacturing, development, marketing, service, administration and headquarters at most US locations and there will be capacity reductions and consolidations at some plants. The result of the latest round of cuts is intended to be a $1,000m reduction in costs at the company, but the charge means that IBM will certainly see a down fourth quarter, and earnings per share will be around $7 for 1989 against the most recent forecasts of around $9.30.If IBM manages to persuade the right – that is the least productive – people to leave the company, it will end 1990 with 206,000 employees, a reduction of more than 37,000 from 1985 levels. Additional restructuring and other actions are being taken with respect to joint ventures, alliances, technology and software investments. These include adjusting the valuation of IBM’s investments and reflecting, among other factors, modified recovery periods consistent with the company’s drive toward shorter product cycles. Since the numbers it wants to cut are lower than most analysts believe it needs to lose to improve its profitability the principal sweetener in the announcement is the news that the company is to invest up to another $4,000m buying in its own shares in addition to the $1,000m authorised in October. Once completed, the new programme will mean that IBM will have bought about 15% of the shares it had out as of mid-1986. That was enough to persuade the market to take a posi tive view of the moves, and the shares were up $1.125 at $100.375 at 12.40pm New York time. Standard & Poor’s Corp was quick to affirm the ratings on IBM and IBM Credit Corp’s senior and subordinated debt at triple-A and commercial paper at A1-Plus, saying that the balance sheet remains very sound and that the actions stem from slowing ind ustry growth rather than any funda mental change in IBM’s dominant competitive position in the market.
