The long silence from new IBM Corp chief Louis Gerstner had to end soon, and the Wall Street Journal on Friday set about putting numbers on the enormous new round of job cuts and closures that we have been saying for months were going to be needed. IBM has been in a state of phony war up to now because although it was showing enormous losses, volume had not seriously begun to decline, even though almost all observers agree that annual turnover of over $60,000m is totally unsustainable by IBM’s main businesses. The Journal reckons that the number to leave the company this year will be almost 50,000, and that this will cost the company a charge of about $2,000m. The shares shed $1.125 on the report, which also suggested that the dividend would have to be slashed again: it is simply not sound business to borrow money to pay out to shareholders. IBM, as might be expected, had no comment on the report, and said that IBM was still compiling data from a previous job cutting programme that ended on June 30. The company had been planning to cut 25,000 jobs this year; the announcement is expected with the second quarter figures on June 27. The latest cuts will shrink IBM’s headcount to about 250,000, down from a 1985 peak of 405,000 and depending on the tax treatment, says the Journal, it also could shrink IBM’s book value to about $44 a share. In a May prospectus, IBM warned that Gerstner had asked his top managers to submit their predictions for additional personnel and asset reductions. On the dividend, the expectation is a cut to $1 a share from the present $2.16, saving $660m a year, but still draining $570m of borrowed money out of the company and putting the storm-damaged credit rating in further double jeopardy.
