It appears that mainframe manufacturing and that of the chips that go into them will bear the brunt of the increase in voluntary redundancies and plant consolidations announced by IBM Corp late on Tuesday – and Wall Street, which typically greets news of cuts as positive, is not at all happy with the latest round. Worries centre on what appears to be an acceptance by IBM that its mainframe business has slipped into irretrievable decline, and as that perception becomes widespread among users the decline can only accelerate as those that had planned to grow their mainframe installations pause and reconsider the options. The relative beneficiary should be IBM’s mid-range but growing AS/400 business and to a lesser extent the RS/6000. The reaction on Wall Street was encapsulated in the fact that the shares lost a dollar and slumped as low as $80 even for a 10-year low in early trading yesterday. In July the company had said that it then expected 32,000 people to take redundancy this year (CI No 1,975), up from the 20,000 forecast at the beginning of the year: now it says it expects 40,000 to go, 8000 of them in Europe – of which the UK share is 600, and 4,000 of them in Asia. The rate at which its expectations have been rising strongly suggests that by the end of the year, the figure will be even higher than 40,000, which is already 12% of the 344,000 with which it started the year. The peak was 407,000 in 1986. The news of the additional departures was accompanied by a new capacity-reduction programme focussed primarily on physical assets, such as equipment and buildings, with some employee relocations involved. The company is also taking a $415m hit for faster depreciation of software, which again underlines the deterioration in the company’s perception of its mainframe business. IBM said that the cost of the actions will be approximately $2,100m net, on top of the $2,100m that it will take to cover the cost of the voluntary redundancies, the $4,200m total to be offset by adoption of Financial Accounting Standard 109(a), which will allow the company to write back to the profit and loss account about $1,900m in money set aside for deferred taxes. Including the capacity-reduction actions – which will primarily involve closing of buildings rather than abandonment of entire sites, IBM will have reduced its total manufacturing space by about 40% since 1985. The benefit of all this is estimated to be a saving on annual costs of about $4,000m beginning in 1993 – but all the cost-cutting that the company already has under its belt has done no more than enable it to stand still, which is why several analysts question whether even the latest cuts will prove sufficient.
