IBM Will Slash 25,000 Jobs in Restructuring

By VICTOR F. ZONANA and JONATHAN WEBER

Dec. 16, 1992 12 AM PT

TIMES STAFF WRITERS

NEW YORK — International Business Machines Corp., acknowledging that it may never return to its preeminent position in the global computer industry, said Tuesday that it would slash 25,000 more jobs, consolidate manufacturing and take a whopping $6-billion cut in fourth-quarter earnings to pay for the moves.

The company conceded that it probably would have to abandon its vaunted no-layoff policy to achieve its cost reductions. IBM has already eliminated 100,000 jobs through voluntary departures the last few years, and it expects to have 307,000 employees at the end of 1992--down from a peak of 406,000 in 1986.

The announcement sent IBM’s stock, among the most widely held in the world, plunging $6.75 a share to an 11-year low of $56.125, with almost 12 million shares trading hands.

The moves mark the latest effort by IBM to counter a severe two-year decline brought about by a weak global economy and rapid technological change. Like General Motors, American Express and other large U.S. corporations, IBM’s size and entrenched corporate culture have hindered its ability to adapt to change, allowing more nimble competitors to steal its markets.

Although many segments of the U.S. computer industry remain strong, IBM’s continuing slide could be damaging to the country’s technological base. President-elect Bill Clinton, at his economic conference in Little Rock, Ark., referred to the company’s decision to cut jobs and reduce spending on product research and development by $1 billion, saying: “That’s the exact thing we don’t want them to be cutting.”

And just two months after IBM officials had insisted that the company’s dividend to stockholders was secure, IBM Chairman John F. Akers said IBM is now “unsure of its ability to maintain the dividend at current levels” because of the poor earnings prognosis for the fourth quarter and 1993.

“This management’s credibility is zero,” complained David Wu, a securities analyst with S. G. Warburg & Co., after a hastily called meeting with analysts and reporters at which Akers was asked repeatedly whether he would resign.

The computer industry is facing a number of daunting problems: sluggish economies in the United States, Europe and Asia, plummeting prices for computer hardware and the migration of businesses, universities and other users away from large central mainframe computers to smaller, more powerful machines that perform many of the tasks as mainframes at much less cost.

IBM has been struggling for the last two years to adapt to these changes, with little success. The most dramatic move came in November, 1991, when the Armonk, N.Y.-based company launched an effort aimed at giving its individual operating units more autonomy in developing products and setting prices.

Akers, 58, said that while he felt “great personal responsibility” for IBM’s plight, “I will not step aside.” He added that he had been assured of the board of directors’ support at a special meeting on Monday.

Akers said Tuesday the company was continuing to explore “alternative ownership approaches” for the semiautonomous units that make PCs, printers and storage devices, as well as for IBM’s financing unit. Such a move could give those units more flexibility in responding to market changes.

Most of the 25,000 workers who will leave next year are expected to go voluntarily.

Many of IBM’s problems lie in the technology-driven shift in the way large corporations buy and use computers. Until recently, big companies were virtually obliged to use multimillion-dollar IBM mainframes for many critical tasks, since few other machines were up to the job.

That meant that they also relied upon IBM for software, maintenance and long-term computer systems planning.

But advances in technology--and especially the continued evolution of the PC--have effectively severed IBM’s exclusive link to corporate computer managers.

As corporate data processing departments find alternatives to the venerable IBM mainframe computers, they also rely less on Big Blue for software and service. This is especially worrisome for IBM, because the company is banking on the fast-growing software and services areas in its turnaround bid.

Analysts agree that cost-cutting alone won’t make a dent in IBM’s problems. And they have mixed views on whether the company will be able to reverse its decline. “They have demonstrated that they can turn around the PC business,” said Richard Shaffer, principal at Technologic Partners in New York. IBM’s PC sales have soared since the company cut prices, introduced a new discount brand and gave its PC division more autonomy this summer.

IBM retains a strong position in some crucial new areas, including workstations featuring reduced instruction set computing (RISC)--an advanced chip technology that makes it easier and cheaper to manufacture microprocessors.

Such workstations are among the systems that are replacing mainframes, and IBM is also working with Apple Computer on lower-cost RISC workstations that could eventually compete with PCs.

IBM is also a leader in emerging technologies, such as voice recognition. And even in such established areas as data storage and computer chip design, the company remains a technology powerhouse.

But translating technological leadership into sales hasn’t been easy for IBM. In data storage, for example, IBM invented nearly all the core technologies used to make computer disk drives. However, by focusing on building large drives to go with its mainframe computers, IBM allowed Seagate Technology, Conner Peripherals and others to capture the market for PC disk drives. Disk drives represent one area where IBM is now slashing manufacturing capacity.

Similarly, in computer chips, IBM was long oriented to the specialized needs of its own computer divisions and thus hasn’t fully exploited its top-notch technology.

Even as it cuts back its chip-making operation, IBM is now moving aggressively to sell to others. And there is one encouraging precedent: American Telephone & Telegraph has successfully transformed its chip operation from an internal supplier to a mass-market vendor, though only after years of losses.

Stewart Alsop, editor of the trade newspaper Infoworld, says IBM has plenty of good technology, but must “change the way they it thinks about technology.” Rather then selling an expensive package of hardware, software and service to a captive market of corporate computer managers, IBM must build superior, cost-effective products that enable customers to create their own solutions, he says.

Some IBM-watchers think the company has already missed its chance to be a leader in the technologies that are replacing the venerable mainframe. “This is a company that is facing a very bleak future,” said Charles Ferguson, a one-time IBM employee and MIT researcher. Within five years, he predicted, IBM will have sales of only one-third to one-half of what it has now, and at least 100,000 fewer employees.

Investors from pension funds and other institutions, who have watched IBM’s stock market value fall by more than one-half and are emboldened by recent moves to oust the leaders of such struggling companies as General Motors and American Express, are turning up the heat on Akers.

“The hourglass sands are running sharply against Akers,” said Stephen C. Dube, an analyst with Sherwood Research Group.

Zonana reported from New York and Weber reported from San Francisco.