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IBM Chops 2,000 from Global Services Division

By Teri Robinson
May 31, 2002 9:17 AM PT

With surgical precision, IBM has sliced 2,000 jobs from its Global Services unit as it struggles to bring its financials more in line with forecasts.

IBM Chops 2,000 from Global Services Division

While cuts in the division were expected, the number was much higher than originally thought, particularly considering that Global Services has performed well for Big Blue.

The division, which has more than 150,000 employees, grew faster than any other IBM division in 2001. IBM cut employees from a variety of locations, such as Raleigh, North Carolina; Dallas, Texas; and Fishkill, New York.

Big Blue gave workers their pink slips and said they have 30 days to find another job within the computer giant's ranks.

Overall Plan

This latest round of cuts is part of a bigger layoff scheme that IBM began this spring. The company is expected to divest itself of 8,000 to 9,000 employees, amounting to about 3 percent of its workforce.

To date, IBM has made cuts in Global Services and has pared back its computer division by a little over 1,000 jobs. In addition, the company has laid off 700 people from its software unit and 95 from its global financing units.

While Global Services has been responsible for most of the positives on IBM's financial landscape, even that division has seen revenue drop in the past two quarters.

Purchases Deferred

Like other tech companies, IBM was hit hard as tech spending dropped precipitously during the economy's steep downward slide.

"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," IBM CEO Samuel J. Palmisano explained.

In the first quarter, the company'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.

After the company posted what Palmisano called "disappointing" financial results and warned Wall Street that it would be tough to meet forecasts, IBM's CEO told financial analysts that Big Blue would cut $1 billion to $2 billion in costs starting this year.

"They are a publicly traded company. They had to do something to meet" their earlier estimates, Harry Tse, vice president of research at the Yankee Group, told the E-Commerce Times.

More Cuts

In an investor newsletter published this spring, Palmisano alluded to operational cuts that the company would need to make in order to stay lean in a still-challenging economy.

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

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

Breaking Tradition

Big Blue has laid off employees sporadically over the last few years, including 1,000 people in its semiconductor sector last fall. The company, which once had a tradition of never laying anyone off, generally has tried 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.

Tse said he expects the overall layoffs will affect all segments of IBM's business, from services to software.


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