International Business Machines Corp. will not achieve the "solid growth" it had earlier forecast for 1985, IBM President John F. Akers told security analysts today.
Akers blamed the continued strength of the dollar, weakness in the U.S. economy and a significant drop in capital expenditures for the change in the company's economic outlook. "We expect that, on the nine-month, year-to-year comparison against 1984, we still will not be even with last year," Akers said.
To show real earnings growth for the year, said Akers, "We are depending on an especially strong fourth quarter."
The price of IBM stock dropped 5 1/4 points today to 120 3/4 with 2.5 million shares traded.
"Last year, we put together a plan that required a 30 percent physical growth in shipments around the world," Akers said. "We put together a similar plan in 1985. That's just not going to happen in the U.S. Shipments will be up -- but not up to the unprecedented levels of 1984." IBM's chief financial officer, A. J. Krowe, estimated that shipment growth would be closer to 20 percent.
IBM's lower projections are in line with what has been an industry-wide slump for computer hardware and software manufacturers. However, Akers dismissed assertions that the slowdown represents a fundamental problem with the information-processing industry itself, insisting that the problems were macroeconomic in nature and particular to the United States.
"While real economic growth outside the United States in the major countries continues to improve, ours is in a lull," said Akers, adding that IBM had revised its GNP forecast for this year from 3.7 percent growth down to 2.9 percent real growth.
While IBM's non-U.S. business will be "an area of strong support throughout the year," Akers said, the strength of the dollar effectively offsets overseas contributions to IBM sales and earnings.
Similarly, the strong dollar has resulted in "massive increases in U.S. imports" that have helped meet domestic demand, which, in turn, has affected domestic capital spending.
Akers noted that corporate spending for capital goods has declined dramatically, with industry order rates for office, computer and accounting equipment in April dropping 30 percent compared with March levels.
But Akers did concede that "there is clearly overcapacity" in the computer industry. "The $64 question is, would there be an overcapacity even if the growth rates were the same as 1983 and 1984? My answer is yes . . . expectations were too high," Akers said.
IBM's own product announcements have contributed to its problems. Potential customers "still are evaluating carefully the tradeoff" between buying an IBM 308X mainframe computer and the company's new 3090 mainframe -- known as the Sierra -- Akers said. He added that 308X sales fell "somewhat below our earlier expectations."
IBM's line of intermediate minicomputers likewise is experiencing a continued sales shortfall. Akers noted that personal computer sales may have cut into the intermediate systems sales.
Akers, who also is IBM's chief executive officer, did say that 3090 mainframe sales, disk drives and personal computer sales were meeting the company's expectations and that "this pause we're experiencing is a 1985 pause." Revenue will grow to more than $50 billion this year, he predicted.
Assuming the economy improves and the dollar weakens, Akers expressed optimism for next year, saying that "1986 could be like [post-recession] 1982.
"That was not a very good year for the industry, but it was a very good year for IBM," he said.