You've Got To Save To Be Able To Spend - IBM Starts Cutting Jobs

Feb 27 2014, 8:49pm CST | by

Over the past couple of months we’ve had some high profile, high impact announcements of some major investments by IBM. $1.2B going towards rolling out Softlayer to further global locations. $1B to move lots of IBM software over to the cloud and $1B to extend the reach of their high profile Jeopardy-beating software Watson. It seems that all we hear of late (other than well aimed kicks in Amazon Web Service’s direction) are some big bets and big spending by Big Blue.

But things don’t always work in that direction and today is a case in point. Bloomberg is reporting that the company has begun today on a round of layoffs that are part of a broad $1B restructuring project. According to the article, staff across the US have been fired – including employees in New York, Vermont, Minnesota, Iowa, Missouri, Oklahoma and North Carolina. The company is also slicing jobs globally and some analysts suggest that some 13,000 of its 430,000 or so employees could be set to go this year alone.

These cuts come amidst IBM’s stated aim of an adjusted earnings for the 2015 year of almost twice that they earned in 2010 – given the fact that technology revenues generally are being squeezed, this growth is all the more problematic. It also speaks to the perils of being a publicly traded company in a time of great industry change – more about this later.

Of course it’s easy to look at large staff cuts like this and inflate them to being more important than they are. While they might be unpalatable for those being cut, this is all part of IBM reinventing itself to remain relevant in an environment where customer spend is running head first to the cloud – decimating IBM’s bread and butter of selling hardware for enterprises’ own data centers. It seems that many of the staff cuts are in these areas – and unrelated to the high profile and more promising areas such as Watson, cloud or services. This, along with the fact that 7,000 employees will move over to Lenovo as part of IBM’s $2.3B sale of its low-end server division to the Chinese manufacturer, would appear to be a good place to trim fat.

There are two aspects to this cost cutting. Re-prioritizing areas and downsizing those that show declining revenues is an entirely appropriate step to take. However IBM’s stated goal of $20 adjusted earnings per share is an arbitrary figure that is an example of just how hard it is for a publicly traded company to make fundamental changes to how it works. One of the key reasons that Dell went private was to give it the freedom and the insulation from the vagaries of the market to make longer term strategic decisions without being second guessed every quarter by investors.

IBM doesn’t have this luxury and hence has to have a far more measured approach to changing its business. This makes it very hard for the company to increase the velocity of change. I suspect that further cost cutting will be necessary in order to make up for the costs and revenue reduction that will come as IBM moves itself to the new paradigm of enterprise IT.

Source: Forbes Business


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