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Summary:

On its last earnings call, IBM laid the groundwork for more layoffs, and now they’re here. As Big Blue tries to reinvent itself, heads are rolling.

layoffs firing cost cutting

IBM, in the midst of its massive transformation from a hardware-and-software-and-services company to a cloud-and-services company, is cutting jobs worldwide. The goal, besides remaking the 103-year-old tech giant into a modern IT leader that can take on Amazon Web Services and a flock of younger tech vendors, is to deliver on the promise to deliver $20 (non-GAAP) earnings per share by the end of 2015. Accomplishing that goal would be quite the feat, given the past few quarters of disappointing performance.

For IBM’s fourth quarter ending December 31, earnings — excluding some items — hit $6.13 per share, exceeding estimates of $6.00, according to Bloomberg. The trouble lay in revenue, which dipped for the seventh consecutive quarter — to $27.7 billion, missing estimates of $28.3 billion.

As for the job cuts, it’s not as if IBM didn’t warn us. On last month’s Q4 earnings call, CFO Martin Shroeter said IBM had reserved $1 billion to cover workforce reductions. Estimating that each person laid off costs IBM about $70,000, Sanford Bernstein analyst Toni Sacconaghi told USA Today the company could cut 10,000 to 15,000 workers out of a total headcount of about 400,000.

Lee Conrad, a  former IBMer who is now the national coordinator of Alliance@IBM, a watchdog group affiliated with a union of IBM workers, said he is hearing of job cuts in several countries, the largest seemingly in India. “Reports from angry IBM India workers started flooding into the Alliance website 3 days ago,” he said via email on Thursday. “Hardest hit was the Systems Technology Group. Today we are hearing of job cuts in IBM India Software Group.”

The Alliance’s latest, admittedly incomplete list includes 1,500 jobs cut in Brazil, 600 in Argentina, 480 in France, 430 in Italy, 240 in the Netherlands and 105 in Belgium. Cuts in European countries must be negotiated, so the numbers could change, Conrad said.

Earlier this month, the company announced the sale of its X86 server business to Lenovo, and some of the latest job cuts in India and elsewhere relate to that move. The company is also reportedly looking to sell off its SDN and chip business.

“It’s important to look at what IBM is doing holistically. It’s jettisoning anything that’s not cloud or Internet of Things,”  said analyst Patrick Moorhead of Moor Insights & Strategy. And yes, he acknowledged, the company needs to hit that magical $20 EPS number as well.

IBM Board of Directors Elects Virginia M. "Ginni" Rometty Presid

I’ve reached out to IBM for comment and will update this report as needed. An IBM spokesman reaffirmed what IBM said it in it’s earnings call — that

“IBM continues to rebalance its workforce to meet the changing requirements of its clients …. and positioning itself to lead in areas such as Cloud, Analytics and Cognitive Computing and investing in these priority areas.”

IBM’s former CEO Sam Palmisano delivered that $20-per-share pledge in May of 2010 and now it’s up to his successor, Ginni Rometty, to deliver on it. All I can say is: Poor Ginni.

Note: this story was updated at 7:25 a.m. and again at 8:22 a.m. PST February 14 with analyst comment and IBM comments.

  1. In an era of rapid technological innovation, keeping up is one thing, staying ahead another…. however the massive change seems to be more motivated by share-holder return rates instead of innovation.. Shareholder returns beats innovation, sad day isn’t it

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  2. Diego Schmunis Friday, February 14, 2014

    To let people go to increase share value is putting the cart before the horse.

    When will companies learn that laying employees off as a mean to increase revenue (or achieve profitability) is just a non-sustainable/scalable illusion?

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    1. For how long / how many years… have the companies been laying off employees as a means to increase revenue or achieve profitability ? Many decades ….

      If it was non-sustainable, they should have known by now ?
      Or is there something that the managements have in their strategies to counter that effect ?

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  3. Long term shareholder return is on of the prime reasons that companies are incorporated. Innovation is a means some of the companies employ to achieve that.
    It’s a sad day for the employees for sure though.

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  4. When will companies learn that laying employees off as a mean to increase revenue (or achieve profitability) is just a non-sustainable/scalable illusion?
    For how long / how many years… have the companies been laying off employees as a means to increase revenue or achieve profitability?
    It’s a sad day for the employees for sure though.
    Sad day isn’t it?

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  5. It’s the IBM way! No products or high quality services remaining! Palmisano started the program to line Executive retiree’s wallets with stock earnings! Ginny has maybe one or two years, now she wants the same results. There is no vision at IBM. They bring armor to an air war everyday.

    And by the way……..

    DIY is better quality and more affordable……..just ask Google and Amazon!

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  6. Michael Peralta Tuesday, April 29, 2014

    $20 can change lives. Ask me.

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