IBM Reportedly Plans 8,000 Layoffs

In what would be its largest reduction in nearly a decade, IBM (NYSE: IBM) reportedly will soon lay off as many as 8,000 workers.

"People internally had been expecting this," Harry Tse, vice president of research at the Yankee Group, told the E-Commerce Times.

Facing relatively dismal financials in the first quarter of this year, company officials already had issued an earnings warning for the second quarter, leading analysts to speculate that Big Blue would have to impose cost-cutting measures.

"They are a publicly traded company, they had to do something to meet" their earlier estimates, Tse said.

Lackluster Q1

In the first quarter, IBM's diluted earnings per share fell 31 percent from the year-ago period to 68 U.S. cents. Net income in the first quarter totaled $1.19 billion, a 32 percent decline from the $1.75 billion recorded in the first quarter of 2001.

At the time, IBM president and CEO Samuel J. Palmisano called the first-quarter results "disappointing" and blamed them in large part on the "continued weak global business environment."

"Customers in every part of the world deferred technology purchases in the first quarter, and these widespread deferrals hurt us across every one of our major business segments," he explained.

Tse said at the time that while the lower earnings and losses were not devastating for IBM, they represented a setback for a near-term tech recovery.

"It's not that bad [for IBM], but it's not a good indicator of where the industry is heading," Tse noted. "The recovery may not be in sight as many people had hoped."

Hoping for Upswing

Pamisano has said IBM remains "optimistic that business conditions will improve later this year." He pointed to IBM's success in garnering income and noted that the company has, in some cases, championed competitors.

"Even within this tough climate, we generated $1.7 billion in pretax income, we had very strong services signings of more than $15 billion, and we believe we gained or held share in high-priority segments of services, software, servers and advanced storage products," said Palmisano.

But on the heels of its poor first-quarter showing, IBM issued an earnings warning for the current quarter. Further, in an investor newsletter, Palmisano alluded to operational cuts that the company would need to make to stay lean in a still-challenging economy.

Reports of an impending cut to IBM's 318,000-employee workforce came just after the company gained high marks for shoring up its WebSphere product line and expanding its Global Services offerings with a Web backup service.

Early '90s Rerun?

The company last underwent massive layoffs in the early 1990s, when it suffered one of the worst declines in its history. But after significant retooling, IBM emerged with a slicker image and better financials.

Big Blue has laid off employees sporadically over the last few years, including 1,000 people in its semiconductor sector last fall. The company has in the past made an effort to keep its layoffs as low-key as possible.

The company also has "trimmed non-performing divisions like hard disk drives," offloading 17,000 employees to a joint venture with Hitachi, according to Tse.

The latest round of layoffs is expected to target certain divisions, according to published reports. But Tse said he expects the layoffs will affect all segments of IBM's business, from services to software.