NEW YORK -- International Business Machines Corp. Tuesday reported an $8.04 billion second-quarter loss, saying it plans to cut 35,000 more jobs in an effort to stop the hemorrhaging at the world's largest computer company.
The quarterly loss included a $8.9 billion restructuring charge that exceeded analysts' estimates, which had ranged from $2 billion to $8 billion.
IBM also said its board approved the company's second dividend cut this year, to 25 cents a share from the current 54-cent payout.
In January, Big Blue reduced its dividend to 54 cents a share from the previous $1.21.
'The No. 1 priority is to restore the company to profitability,' IBM Chairman Louis V. Gerstner Jr. told a news conference. 'We've made some assumptions on what we think is going to happen. If those assumptions are wrong, we will take additional steps to make the company profitable.'
Gerstner, who took over IBM April 1, has faced faltering employee morale and massive losses.
But initial investor reaction to Tuesday's announcement appeared mixed.
While Standard & Poor's Corp. lowered IBM's debt ratings and Moody's Investors Service put the computer giant under review for a possible downgrade, IBM stock became the most active issue on the New York Stock Exchange in late afternoon trading, up $2.50 to $44.875 a share.
Excluding the $8.9 billion restructuring charge, IBM posted a net loss of $40 million, compared to earnings of $734 million, $1.29 a share, in second-quarter 1992.
The $40 million loss before extraordinary items proved better than analysts had expected.
The $8.9 billion charge included $6 billion for work-force reductions and $2.9 billion to reduce capacity, office space and related expenses.
Revenues for the quarter declined more than 4 percent, to $15.5 billion compared with $16.2 billion in the year-ago quarter.
Gerstner said although the restructuring actions will affect all parts of the company worldwide, the work-force reductions will be more heavily concentrated outside the United States.
IBM has been reducing its work force since 1986, trimming its payroll by more than 40,000 employees in 1992 alone.
However, Big Blue has seen very few U.S. layoffs. Instead, most of the domestic streamlining has come from attrition, early retirement or buyouts.
Still, the computer maker has indicated future staff reductions could require layoffs.
Gerstner said that since 1993 began, some 50,000 employees have left or made commitments to leave the company this year.
He said the actions announced Tuesday will result in a further 35,000 job cuts.
Gerstner also did not rule out future employment reductions.
But he added, 'The employees have borne an unbelievable burden. Morale in some parts of the company is not strong. I'm worried about that. We want to put an end to the Chinese water torture they've been going through quarter after quarter, year after year.'
The executive could not offer specifics on when the 'torture' would end, but said he hoped steps the company outlined Tuesday proved correct.
However, he admitted, 'There are no certainties in this.'
IBM, a pioneer in the mainframe-computer business, steadily lost market share in recent years as other companies dove into the popular personal-computer market.
'There is still a lot of mainframe horsepower being sold in the world, but they're now more productive,' Gerstner said. 'We are selling less units for the same customer output.'
However, the CEO declined to comment on IBM's technological direction.
'The last thing IBM needs is a vision,' he said. 'I don't believe there is a single technological strategy for IBM. I don't want to choose between being a service or product company.'
Gerstner said business conditions generally proved soft throughout the world in the second quarter.
IBM's overall hardware sales declined nearly 13 percent, while revenues from all other sources increased more than 5 percent.
'We are not satisfied with IBM's financial performance,' Gerstner said. 'However, our second-quarter results show some areas of improvement over the first quarter.'
He said IBM personal computers and workstation computers did well in the market, while the company's services business showed double-digit growth in the quarter.
'Our overall gross margin remained stable for the third consecutive quarter. It's far too early to declare victory on that front, but it's an encouraging sign,' Gerstner said.
Because of the ongoing growth of IBM's services businesses, some limited hiring will occur. As a result, IBM said it expects its worldwide employee population to be in the range of 255,000 at the end of this year but then drop to only 225,000 by the close of 1994.
For the first half, IBM reported a loss of $8.32 billion in contrast to earnings of $3.28 billion, or $5.74 a share, a year earlier. The results for the first six months last year included a $1.9 billion benefit from a change in accounting principle.
Six-month revenues slipped more than 5 percent to $28.58 billion from $30.26 billion in the year-ago period.
S&P said it lowered its senior debt ratings on IBM, IBM Credit Corp., IBM International Finance N.V. and IBM Japan Ltd. to single-A from double-A minus.
The rating agency also lowered IBM's preferred stock rating and its commercial paper ratings.
About $21 billion of rated debt and preferred stock was affected by S&P's move.
Moody's placed IBM's short and long-term debt and preferred stock ratings under review for a possible downgrade. The agency also placed IBM's financial subsidiaries under review.
Approximately $27 billion of IBM's debt and securities were affected by the action.
International Business Machines Corp. reported a second-quarter loss of $8.04 billion Tuesday -- including an $8.9 billion restructuring charge -- and said it will eliminate 35,000 jobs to stem the flow of red ink and slash its quarterly dividend by more than 50 percent.
The dividend cut approved by the IBM board Tuesday is the second this year and slashes the quarterly dividend on IBM common stock to 25 cents a share from the current 54 cents. The dividend was reduced to 54 cents a share from $1.21 a share in January.
IBM Chairman Louis V. Gerstner Jr., who took over the helm of the foundering computer giant April 1, said the restructuring underscores his primary goal -- bringing expenditures into line with revenues. The dividend reduction will conserve cash while the company makes critical decisions about its future.
The market's initial reaction to Gerstner's vision of a leaner, meaner IBM was positive. IBM was the third most active issue on the New York Stock Exchange at late morning and was trading at $45.75 -- up $3. 375.
Before the $8.9 billion restructuring charge, IBM posted a net loss of $40 million compared with earnings of $734 million in the second quarter of 1992. The $40 million loss for the quarter -- before extraordinary items -- was less than analysts had expected. The restructuring charge, however, exceeded the highest estimates of analysts, whose predictions ranged from $2 billion to $8 billion.
Revenues for the quarter declined more than 4 percent, to $15.5 billion compared with $16.2 billion in the year-ago quarter.
Gerstner said that, although the restructuring actions will affect all parts of the company worldwide, the work force reductions will be more heavily weighted toward positions outside of the United States.
IBM has been downsizing since 1986 but has never resorted to layoffs. All of the streamlining thus far has been accomplished through attrition, early retirement or buyouts. The computer-maker has indicated, however, that future staff reductions may require layoffs.
IBM reduced its payroll by more than 40,000 employees in 1992.
Gerstner said that, since the beginning of this year, some 50,000 employees have left or made commitments to leave the company in 1993. He said the actions announced Tuesday will result in a further decline of approximately 35,000 employees.
Big Blue, a pioneer in the mainframe-computer business and still the largest computer company, has steadily lost market share in recent years as other computer companies drove a wedge into the popular personal- computer market.
'Getting IBM's cost and expense structure in line with the revenue realities of our industry -- right-sizing the company -- is my highest near-term priority at IBM,' Gerstner said in announcing the restructuring.
'Today's announcements, when fully implemented, are intended to accomplish this. If our current view of future industry revenue and demand proves incorrect, we will have to take further actions. But if our assumptions prove correct, we believe we will be able to absorb, without resorting to additional special charges, the costs associated with any future productivity improvements,' Gerstner said.
Because of the ongoing growth of IBM's services businesses, some limited hiring will occur. As a result, the company said it expects its worldwide employee population will be in the range of 255,000 at the end of this year, and 225,000 at the end of next year.
The $8.9 billion pre-tax restructuring charge includes $6.0 billion for employee reductions and $2.9 billion to reduce capacity, office space and related expenses.
Gerstner said business conditions generally were soft throughout the world in the second quarter. IBM's overall hardware sales declined nearly 13 percent, while revenues from all other sources increased more than 5 percent.
'We are not satisfied with IBM's financial performance. However, our second-quarter results show some areas of improvement over the first quarter,' he said.
He said IBM personal computers and workstation computers did well in the market, and its services business showed double-digit growth during the quarter.
'Our overall gross margin remained stable for the third consecutive quarter. It's far too early to declare victory on that front, but it's an encouraging sign,' he said.
For the first half of this year, IBM reported a loss of $8.32 billion compared with earnings of $3.28 billion in the first half of last year -- which included a $1.9 billion benefit from a change in accounting principle.
Consolidated revenues for the first half of this year were down more than 5 percent, to $28.58 billion compared with $30.26 billion in the year-ago period.
IBM Tuesday also announced several changes in its board of directors .The company said Stephen D. Bechtel Jr., 68, chairman emeritus of The Bechtel Group, and J. Richard Munro, 62, chairman of the Executive Committee of the Board of Directors of Time Warner Inc., have retired from the IBM board.
IBM also announced that Charles F. Knight, chairman and chief executive officer of Emerson Electric Co., was elected to the IBM board Tuesday.
