IBM this week told Wall Street that its prospects for revenue growth during the next two years are modest, but that a turnaround in the company’s earnings is at hand. The event at which characteristically optimistic chairman John Akers spoke to his company’s most important investors was the annual visit to IBM of analysts from […]
IBM this week told Wall Street that its prospects for revenue growth during the next two years are modest, but that a turnaround in the company’s earnings is at hand. The event at which characteristically optimistic chairman John Akers spoke to his company’s most important investors was the annual visit to IBM of analysts from across the country, this year hosted by the New York Society of Securities Analysts. The analysts phoned their reactions in to brokerage houses and other financial institutions from IBM’s facility in suburban Thornwood, New York, where it immediately registered on the floor of the New York Stock Exchange. IBM’s distinguished guests apparently saw less to boast about in IBM’s future than Akers: IBM stock fell $1.25, or 1%, to $120.625, on volume of 1.8m shares, while the Dow Jones Industrial Average of blue chips including IBM dropped 18.24 points, or a slightly smaller 0.9%, to 1945.29 as Big Board volume topped 202m shares. Akers hedged his generally confident predictions for IBM. He characterised the recent stock market event as a crash and noted, Although we have history and models to give us some guidance [about the effects of the worldwide debacle in equity markets], these events were so violent that history may not be a guide. He then pointed out that several recent economic indicators in the US and abroad were quite positive. As for the aftermath of the crash, So far, we have seen no effect on IBM’s business, he declared. Sales force up 20% IBM’s sales force is now about 60,000, in part because the company has been hauling people out of back offices and putting them in the field. This number, Akers said, is 20% more than we had two years ago. Despite this increase in the ranks of sales reps, both Akers and Frank Metz Jr, IBM’s senior vice president for finance and planning, talked about revenue growth in the range of 8%, a significantly smaller rate than IBM had foreseen only a few years ago when a booming PC business and the selling of its rental base led to forecasts of twice that rate of growth. For investors, however, the most troublesome aspect of IBM’s situation has been the two-year-long decline in profits in the face of increasing revenues. IBM’s executives declared that henceforth, IBM’s profits will rise along with revenues. Metz specifically asserted that profit growth equal to revenue growth now requires only a 6% to 8% increase in sales; before 1985, he admitted, it took 15% growth to achieve this. IBM, itself counting on continued capital spending by its customers, has, since 1985, reduced its capital budget 30% to $4,500m in 1987, according to Metz, who predicted that IBM’s 1988 capital budget would mirror this year’s. IBM’s big push, according to both Akers and Metz, is coming from its growing emphasis on software, which the company expects to show 20% to 30% profit increases a year in the future. At the same time, IBM has tried to trim its overhead, which has until recently eaten into corporate profits. IBM has added 6,000 programmers during the past three years and now employs 26,000; at the same time, IBM has persuaded 15,000 employees, 13,000 of them in the US, to accept its early retirement incentives. The world-wide workforce is down 4% to 389,000 since the beginning of 1986, and is intended to stay there.