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Ibm's Next Remodeling Could Be A Doozy

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In late November, IBM directors gathered in Tokyo for one of their periodic meetings. Before them, Wall Street analysts say, Chairman John F. Akers sketched out plans for a series of bold changes at his beleaguered computer company. Pleased with what it heard, the board gave Akers a thumbs up. Since then, as Daniel Mandresh, computer analyst at Merrill Lynch & Co., puts it: "The lights have been burning late in Armonk"--IBM's corporate headquarters.

The end result, Wall Street believes, is the imminent unveiling of IBM's second massive reorganization in little more than a year. And massive, analysts say, is the best word to describe the overhaul, which may be announced as soon as Dec. 14.

The changes are expected to further Akers' year-old plan for the controlled disintegration of the IBM monolith. In November, 1991, Akers divided the company into 14 lines of business--10 devoted to specific product lines and four to marketing--that were to gain varying degrees of autonomy over time. But now, says Mandresh, conceding that he knows few specifics of what's to come, the new round of changes "will go beyond any Wall Street analyst's or reporter's imagination. They will be sweeping."

ANYBODY'S GUESS. For its part, IBM is mum. It won't say what it plans to do or even confirm that anything is in the works. But the computer industry widely believes Akers will hasten the units' shift toward autonomy while he takes another swipe at IBM's payroll. After lopping off 40,000 positions in 1992 to leave about 300,000 workers worldwide, IBM may slash its employee roster by an additional 30,000 people or more during 1993. Since 1986, IBM has been able to lighten its payroll by slightly more than 100,000 people through early-retirement incentives. This time, however, Big Blue may resort to outright layoffs. IBM is "still saddled with a lot of people," says Barry Bosak, computer analyst at Smith Barney, Harris Upham & Co.

Layoffs or not, IBM would incur a sizable charge against its 1992 earnings. Analysts had expected the company to post per-share profits of $3.50 or so, an improvement over last year's 99 loss, before charges and accounting changes. Now, they say, IBM's results are anybody's guess. Indeed, as reports of impending changes began circulating on Dec. 9, IBM's stock sank 2 3/4 points, to 62 5/8. Investors are especially worried that cash constraints would force IBM to cut its dividend, which at $4.84 a share yields a plump 7.3%. Standard & Poor's Corp. reacted, too, by placing a watch on IBM's AAA debt rating on Dec. 9.

More enticing than another payroll cut, though, is speculation that IBM will take dramatic measures toward giving its 10 product groups much greater autonomy than they now enjoy. At the least, Big Blue is expected to substantially disentangle the Baby Blues' accounting books and release more detailed information about their performance.

Even after last year's restructuring, IBM has continued to report a single, blended set of financial figures. The problem for investors is that the company's success in its Austin-based workstation business, say, may be overshadowed by softness in the far larger mainframe business (table). It's terribly difficult, says Mandresh, for IBM's own bookkeepers, much less outsiders, to determine how the costs of Big Blue's 80,000-strong U.S. sales force should be allocated across IBM's uniquely broad and varied product line. "The logistics are monstrous," Mandresh says.

CONCRETE CHANGES. But Akers could go even further than just opening IBM's books, if only to assure outsiders that this time he really means business. Investors have grown increasingly impatient with Big Blue--and with Akers' performance as CEO--as restructuring after restructuring fails to revive the computer company. The feeling is that Akers can't afford to wipe out 1992's earnings with another downsizing charge if he doesn't make concrete structural changes at the same time.

So Akers might try to please investors by setting forth a detailed schedule for spinning off certain product groups as partly owned subsidiaries with their own class of stock. That's clearly Akers' intent, judging from his reaction to a newspaper story in November, 1991, that detailed how IBM could deliver more shareholder value if it were broken into pieces. "I thought I was reading my own words," Akers said. Soon, he could be trying to turn those words into reality.John W. Verity, with Catherine Arnst, in New York

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