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Another Loss Expected from IBM

July 26, 1993

NEW YORK (AP) _ Investors are prepared for another loss and a large restructuring charge when IBM issues its second-quarter results, as well as a possible cut in the computer company’s dividend.

But there are a few signs that International Business Machines Corp.’s financial problems are beginning to ease.

Its personal computer business, for example, is healthier after years of market-share retreat. To some extent, problems at other personal-computer companies are the result of IBM’s resurgent strength.

In addition, some analysts believe IBM has reached the bottom of its troubles with mainframes, the large data-processing computers that historically have been the company’s bread-and-butter business.

Predictions that mainframes would become dinosaurs have proven premature. Customers who a few years ago might have rushed to dump mainframes for smaller systems now are re-evaluating the wisdom of such a change, partly because the immense data-storage capacity of the big computers is hard to match.

IBM was taking unusual publicity steps in advance of its quarterly earnings release Tuesday morning. It said the company chairman, Louis V. Gerstner Jr. would host a news conference about the results, his first face-to-face meeting with the press since taking over the top job this past spring.

Nonetheless, Wall Street had low expectations for the second-quarter results. The computer company’s stock price continues to reflect investor discontent, falling last week to an 18-year low of $41.62 1/2 . It closed Monday at $42.37 1/2 , up 12 1/2 cents.

Analysts expect IBM to post a second-quarter loss of 20 cents to 30 cents per share before special charges. Estimates of the charge the company may take for personnel cutbacks and asset writedowns vary from $2 billion to $5 billion.

In addition, IBM’s board, when it meets Tuesday, is widely expected to slice the quarterly dividend, perhaps in half from 54 cents to 27 cents. In the first quarter of the year, the board cut the dividend from $1.21.

IBM lost $285 million, or 50 cents per share, during the first three months of the year, while its revenue of $13.1 billion was off 7 percent from a year ago. It earned $734 million, $1.29 per share, on revenue of $16.2 billion in the second quarter of last year.

If IBM does post a second-quarter loss, some of it will be attributable to continuing economic weakness overseas. Many large companies that have already reported second-quarter results have noted lower international sales, particularly in Europe, and IBM derives nearly two-thirds of its revenue from outside the United States.

″That’s the reason everyone expects a loss,″ said John Jones, a high-tech analyst for Salomon Brothers Inc. ″Europe is tough. Japan is showing some signs of recovery ... I would not expect to see a positive surprise.″

IBM earlier this month indicated a special charge may be necessary because more employees than expected have taken incentives to leave. Some analysts estimate 70,000 workers will depart IBM this year, up from the company’s earlier projection of 25,000. It employed just over 300,000 at the start of the year.

A precise number of workers who took an incentive package that expired June 30 may emerge with the quarterly results.

Analysts are divided on whether IBM will also announce a charge that covers the closing of unneeded factories and offices. Some say Gerstner, on the job since early April, and the few new executives he’s hired haven’t had enough time to make such decisions.

″I think it would be premature to expect these individuals in that short a period of time to say, ’I’m going to cut this. I’m going to cut that,‴ said Bob Djurdjevic, president of Annex Research Inc. in Phoenix.

Others say IBM executives were doing the homework before Gerstner arrived.

″Just because Gerstner showed up four months ago doesn’t mean that the line of business execs started working on this project four months ago,″ Jones said.

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