IBM loses nearly $1bn

IBM's Personal Systems Group lost nearly $1bn in 1998, much more than the year before, according to the company's annual report.

The group ended the year with a loss of $992m (£605m) on total revenues of $12.8bn, compared to a loss of $161m on revenues of $14.4bn in 1997. Despite the Personal Systems Group's loss, other IBM divisions, such as Global Services, fared well for the year.

Overall, IBM earned $6.3bn on revenues of $81.7bn in 1998. IBM blamed the loss on the volatility of the PC market in early 1998. The first half of the year saw large increases in channel inventories for both new and older PCs. The situation sparked a round of price-cutting by PC makers, including IBM and Compaq Computer Corp., aimed at moving the inventory.

The combination of rapidly falling prices and large inventories spelled trouble for IBM's bottom line. "That accounts for the revenue decline, as well as an overall loss," said Rob Wilson, an IBM spokesman in Armonk, N.Y. However, "the situation improved in the third quarter, and in the fourth quarter we were profitable." Despite the uptick in year-end earnings, the Personal Systems Group has undertaken some cost-cutting measures, Wilson said.

"We've been undergoing literally years of cost and expense cutting actions," he said. It is unclear if the recent situation will exacerbate those cuts. Wilson was unable to comment because IBM is in a quiet period before first-quarter 1999 results are announced in early April.

There's another reason the Personal Systems Group's business may be on the upswing in 1999. IBM's channel inventories, thanks to efforts to provide PCs to customers on a build-to-order basis, have been reduced, Wilson said. Also, "We're going to continue to reduce our expense structure to stay competitive."

The IBM financial figures became public as a result of new Securities and Exchange Commission rules governing the way companies report earnings. Under the new rules, companies are now required to break out their financial statements by product segment.