Magazine

Just How Good Was Gerstner at IBM?


Louis V. Gertsner Jr., in his nine years at IBM, forced out thousands of loyal employees with layoffs and forced retirement in their late 40s and 50s. ("Lou takes the gloves off," Information Technology, Nov. 18). The object was not to "save the company." IBM has thousands of large corporations throughout the world using operating systems and hardware developed over many decades that is difficult or nearly impossible to replace, and IBM averages $14 billion in profits every year.

Gerstner used $43 billion from profits to boost the share price at IBM with stock buybacks in his nine years at IBM, used the $17 billion in the "old money" pension surplus to boost the annual profits by 20% with "vapor profits" that boosted the share price of IBM stock. This same pension surplus is now less than $500 million today. Meanwhile, retirees received one cost-of-living adjustment in 10 years, the same year IBM did away with promised medical coverage for retirees.

Rather than rescuing a company in trouble, how about an "accounting illusion" to effect radical change? This is my opinion as an employee who worked at IBM for 32 years and fell victim to Gerstner's methods of wealth accumulation at the expense of a once most-admired company.

Mike Saville

Riverton, Utah

Lou Gerstner says with pride that he never cut research and development. He understood that the "p" in p-e ratio most times means the "present value of the future stream of earnings" for the company, and that research and development produces most of those future earnings streams. Most Wall Street analysts should take a lesson from Gerstner. In times of trouble, reducing R&D as a short-term earnings strategy lowers those future streams. CEOs who expediently reduce R&D expenditures to meet analysts' or the Street's short-term earnings demands should have their company's p-e lowered for not thinking strategically. Few analysts understand the negative earnings effect of lowered R&D expense. Gerstner proved that "short-term earnings" should not be the sole criterion for company p-e. Companies that maintain or increase R&D during difficult times should be rewarded for their vision.

Alan B. Shalleck

Princeton, N.J. Could it be Yogi Berra's "deja vu all over again" with IBM pushing "on-demand computing?" ("Computing power sold like electricity," News: Analysis & Commentary, Nov. 11). In the late 1960s, ITT's Data Services Div. tried a similar concept, where customers leased from us the computing power of our IBM 360 computers. It was called "time-sharing," and its time was short-lived.

Kenmore R. McManes

Laguna Woods, Calif. I read with interest the piece on Brian L. Roberts and Comcast Corp. ("A new cable giant," Cover Story, Nov. 18). I was excited when Comcast took over our service in June, 2001. I heard great things about Comcast and looked forward to new services like high-speed Internet. That all changed quickly. Prices went up two times in a 12-month span. Channels were cut. Twice, attempts to contact the local Comcast representatives were ignored. It became apparent that the changes were thinly disguised attempts to force people off analog service to the new digital side. DISH Network and their 50-channel package appeared at a fair price, and we switched. I went from a potential $100-a-month user of Comcast services to zero in 12 months.

Greg Young

Womelsdorf, Pa. Verizon Communications Inc. is proud of its retirees and recognizes their contributions to the company. ("Revenge of the retirees," Working Life, Nov. 18). At a time when other companies are cutting benefits, Verizon retirees receive a pension, 401(k), and medical and life insurance benefits. In 2001, the company paid $3.9 billion in pension benefits and $990 million in medical and life insurance to 200,000 retirees. During the past five years, Verizon also made special lump-sum pension payments or increased pensions for tens of thousands of retirees, including members of the Association of BellTel Retirees. Today, our retirement benefits are among the very best in Corporate America, and we intend to keep them that way.

Ezra Singer

Executive Vice-President

for Human Resources

Verizon Communications

New York We do not dispute that The Merger Fund has been "bruised" by certain of its bond investments this year ("Bruised by bonds," Dividends, BusinessWeek Investor, Nov. 25). Our losses occurred months ago, however, and we fully informed our shareholders at the time. Since then, our bond portfolio has actually shown a substantial recovery. Perhaps "Buoyed by bonds" would make a good title for your next story about us.

What we do take exception to is the last paragraph of the piece. Had your reporter invested the time to interview a random sample of financial planners and investment advisers who have put clients into The Merger Fund in recent years, I guarantee he would have found that the vast majority believe that the fund has been an excellent hedge during the bear market and continues to be a great diversification tool.

Frederick W. Green

President

The Merger Fund

Valhalla, N.Y. "Why atomic energy burns brighter than ever" (Industry Insider, Nov. 18, in some editions) implies that a "catastrophic meltdown" at Three Mile Island Reactor Unit 2 was avoided. Even though a massive containment breach was avoided, it most certainly was a meltdown (a third of the core slumped), and the event was definitely an economic catastrophe. Also, Framatome's Tom Christopher says that if you stack up all the U.S. spent fuel rods, "you'll have a pile that's 10 yards high and fits inside a football field." Of course, Christopher knows such a dense pile is impossible, for reasons of inadequate thermal dissipation. But give him credit for not repeating the industry's reckless claim of two decades ago that the pile would fit into a tennis court.

Kerry Tatlow

Rockford, Ill.

If the federal government continues to buy the argument that nuclear power plants are safe, secure, and needed, shouldn't federal legislation be changed to provide for homeowner insurance? Homeowner insurance policies do not cover losses caused directly or indirectly by nuclear accidents. The entire nuclear power industry is only insured for $9.3 billion.

Paul Feiner, Town Supervisor

Greenburgh, N.Y. Robert Barro is amused over U.S. Attorney General Eliot Spitzer's attacks on the quality of stock-picking by Salomon Smith Barney's Jack Grubman ("Bush's economic policies: The bull's-eyes and busts," Economic Viewpoint, Nov. 4), saying that "economists" find zero value in these kinds of stock recommendations. Analysts and their employers did not disseminate those recommendations primarily to influence economists' stock purchases. The reality is that these recommendations widely influenced many individual investors, and even some large institutional investors--as they were intended to do. I find Barro's take in this whole sorry situation silly if not disingenuous, certainly of about zero value.

Robert W. Gunn

Black Mountain, N.C.

Barro proposes revising the antitrust laws to permit mergers in concentrated industries with "overcapacity," including the rejected 1999-2000 purchase of Sprint by MCI WorldCom. Unprofitable investment decisions do not justify creating monopolies. Antitrust laws already permit mergers for businesses that would otherwise go bankrupt. Financially sound Sprint is probably now free to purchase bankrupt WorldCom at fire-sale prices. Unfortunately, WorldCom's dishonest accounting means that no company dares to purchase it for fear of large and unknown liabilities.

Carl Lundgren

Economist and President

Relpromax Antitrust Inc.

Arlington, Va.


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