05 May 2005 IBM is to lay off between 10,000 and 13,000 workers over the next three months, with the majority of cuts coming in Europe.
The move is part of a wider restructuring that is focused on improving profit margins and reinvigorating its European businesses. Last month, IBM shocked Wall Street by announcing much lower profits and revenue figures than had been expected – $1.4 billion net on sales of $22.9 billion.
IBM blamed a slowdown in its services business – such as system integration, and business process outsourcing – and sluggish European economies. CEO Sam Palmisano said then that he planned to urgently address IBM’s falling margins in the next quarter.
In the same quarter, rival services companies, such as Accenture and CapGemini, announced faster growth, while those specialising in offshoring services dramatically outperformed IBM.
In Europe, IBM said that it will increasingly focus on the faster growing economies in Eastern Europe, and will give those units more autonomy. In contrast, its business in Italy, France and Germany (as well as Japan) have all been shrinking. IBM made no comment about the UK, but some reports suggest that it still has too many staff at Greenock, in Scotland, where it manufactured PCs before that business was sold to Chinese company Lenovo.
The 13,000 job cuts – including some compulsory redundancy – and restructuring will cost $1.7 billion, which will be taken as a one off charge in the second quarter, wiping out IBM’s profits. But financial analysts are likely to welcome the moves; in the early 1990s, executives took IBM to the brink of collapse by failing to make cuts when necessary.
The costs of the lay-offs work out at $130,000 per person, suggesting that many senior staff are likely to lose their jobs.