While layoff announcements at IBM have been sporadic, the company reported to the U.S. Securities and Exchange Commission (SEC) that it has pink-slipped more than 15,000 employees, fully 5 percent of its workforce.
In a separate filing, company president and CEO Sam Palmisano and chief financial officer John R. Joyce also confirmed the veracity of IBM’s financial statements, complying with an SEC order for nearly 1,000 top U.S. firms to certify their financial results. The order is designed to help the commission keep tabs on corporate financials and help restore consumer confidence in the wake of scandals that rocked the business world.
IBM is among 300 or so companies that had complied as of late Tuesday, and the company seems confident that its financials will pass muster. “We already have in place policies and practices to ensure the integrity of our financials,” company spokesperson Carol Makovich told the E-Commerce Times.
Global Services Hit
In a regular quarterly report to the commission, IBM said, “The majority of the workforce reductions relate to the company’s Global Services business.” Of the 14,213 people let go in that division, 57 percent had left by the end of June. “The remaining people were notified by June 30th, and the majority will leave the company by September 30th,” the company noted.
Another 1,400 people were axed from IBM’s semiconductor business. Three percent of those employees left in June, and most of the rest are expected to depart by the end of August.
The company had said earlier this year that it planned to lay off a portion of its workforce and had already made cuts in several divisions.
Disappointing Q1
Makovich noted that while the company conducted layoffs in the second quarter, it did not confirm at that time how many employees would eventually be let go. IBM also dumped its hard drive division in a deal with Hitachi, ridding itself of a struggling business unit and more than 17,000 employees.
While IBM’s Global Services division has continued to generate profits in an uncertain economy, reporting US$35 billion in annual revenue in 2001, the unit’s business has been flagging somewhat. And IBM had what Palmisano called a “disappointing” first quarter. Diluted earnings per share fell 31 percent from the year-ago period to 68 cents. Net income in the first quarter totaled $1.19 billion, a 32 percent decline from the $1.75 billion recorded in the same quarter in 2001.
Profit Through Acquisition?
IBM has aggressively sought new ways to boost its profitability, particularly in the Global Services division, while reducing costs. In a deal that Giga Information Group senior analyst Pascal Matzke told the E-Commerce Times was “a good match that closes the gap in terms of IBM’s own capabilities,” Big Blue recently agreed to buy PricewaterhouseCoopers Consulting for $3.5 billion.
Under the terms of that deal, IBM will pay $2.7 billion in cash and $400 million in stock to complete the acquisition. PwC Consulting will likely report consulting revenue of $4.9 billion for fiscal 2002.
The consultancy’s 30,000 employees will be folded into the business innovation services unit of IBM’s Global Services division.
IBM Not Alone
IBM is not alone in reducing its workforce. In this economic climate, it would be difficult to find a large company, other than Microsoft, that is unfamiliar with the pink slip.
According to outplacement firm Challenger, Gray and Christmas, the number of dot-com layoffs has fluctuated from month to month this year, and large companies like Commerce One have announced substantial workforce reductions.
In addition, established giants Hewlett-Packard and Compaq have said layoffs will follow their mega-merger.
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Investor’s Business Daily reported on 13 May 2002 (page A4) that "IBM sources" stated the 8-10K layoffs are "low-ball estimates" and that "anywhere from 15,000 to 50,000 employees may be dumped before the downsizing is over." It also reports that "Severance pay in the upcoming layoffs will be tight."