IBM to cut 25,000 jobs, warns of future layoffs News of cuts, uncertainty over dividend cause stock to plummet to 10-year low

December 16, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- IBM's seat atop the computer industry shook again yesterday as the company said it would cut 25,000 more jobs through attrition and -- a first in company history -- warned that layoffs loomed if a turnaround does not occur quickly.

IBM said future cuts could come as it pushes to give its 13 divisions more autonomy in a move that could allow managers flexibility to innovate and slim their work forces as they see fit.

"If current business conditions do not improve significantly, however, it is likely that some business units will be unable to maintain full employment in 1993," International Business Machines Corp. Chairman John F. Akers said.

Most of the current round of 25,000 cuts would come from IBM's mainframe computer, chip and disk-drive businesses. The company said plants would be closed and new product development would be pared by $1 billion, or 17 percent, next year.

At his economic summit in Arkansas, President-elect Bill Clinton said IBM's travails were evidence that the economy had not permanently mended. He also said the cuts were in the kind of industries that the country should be supporting.

"Product development will be cut by $1 billion, the exact thing we don't want them to be cutting," Mr. Clinton said.

The plan was not expected to directly affect IBM's 10,000 employees in Maryland, including 400 in Baltimore, because they are primarily engaged in research, customer credit and a home information service.

Another sign of the giant's misfortunes was that even its sacrosanct annual dividend no longer appears untouchable. A January review is due to decide the fate of the hefty $4.84 a share annual payment, a main draw for the many small shareholders who make up the company's 770,000 investors.

The uncertainty around the dividend and surprise that the company was cutting again -- after having already eliminated 40,000 positions this year -- caused the stock to plunge $6.75 to $56.125 a share yesterday on extremely heavy trading of 12 million shares. It was the lowest share price in 10 years.

The world's largest computer company said the cuts and restructuring would cost $6 billion on top of an already announced $5.4 billion for earlier restructuring programs.

This made it a nearly certainty that the once dominant symbol of high technology would suffer a second straight year of losses. Last year, the company lost $2.8 billion, the first in its 81-year history. The company has shed 100,000 jobs since 1985. when it had 410,000 workers.

While analysts applauded yesterday's announcement as a step toward restoring profits, some doubted they were bold enough to revamp the company's centralized structure.

"The company is structured for owning the [computer] business. But now a bunch of other people are cutting in on it and it has to react," said William B. O'Connor of Fourteen Research Corp.

Mr. O'Connor noted that although IBM has excellent quality products and was on the cutting edge of many technologies, it hasn't reacted fast enough to turn them into marketable products. For example, IBM initially spurned the personal computer and was years late in developing laptops. It only came out with a competitively priced home computer this fall.

Part of IBM's problems might stem from its fixation with mainframes, said Frank Caste, an IBM analyst for Feeley & Willcox Inc. All top managers come from the once-lucrative mainframe division, he said. This has caused the company to shelter that division by hindering other units from developing smaller, nimbler IBM products that could have taken sales away from the big machines, he said. In the meantime, other companies have developed these products and are eating away at IBM's market share.

This is due to change under the plan to give the divisions more independence. Mr. Akers said he wanted to create a "federation of companies" that can band together for some projects but might compete with each other indirectly.

Under the new plan, IBM's Adstar disk-drive storage, Pennant Systems printer and personal computer businesses are to be managed as self-sufficient companies. And division managers would also be able to slash their work forces, the company said.

In many ways, IBM's problems parallel those at General Motors Corp., which also once dominated its field by building big, powerful machines and now is scrambling to take on lean, agile )) competitors.

Both companies became synonymous with postwar prosperity and made immense profits during the mid-1980s boom.

At the same time, however, both companies' profits during the 1980s -- when IBM's stock hit $175 a share -- masked their inability to come up with innovative products or decentralized management structures, which is causing them to lose money while their competitors record handsome profits.

"At one point, IBM decided what to build, gave it to their salesmen who told the customers what they needed," Mr. O'Connor said. "Now, it's a different world."

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