SAN FRANCISCO – International Business Machines Corp. (IBM) said on Wednesday it would cut up to 13,000 jobs, or 4 percent of its work force, in a cost-saving move that targets Europe and will lead to a second-quarter pretax charge of up to $1.7 billion.
The world's largest computer company said it would reduce bureaucracy and scale back in slower-growth countries, using global teams instead of single-company operations to deliver some services. One specific move would be to eliminate an unnecessary layer of pan-European management, it said.
Ben Reitzes, an analyst with UBS in New York, said the job cuts could result in up to 50 cents a share in after-tax savings. That amounts to 10 percent of the profit analysts expect from IBM in 2005. A conference call to provide details was called for 8 a.m. EDT on Thursday.
IBM (search) said it expected to take a charge against second-quarter earnings between $1.3 billion and $1.7 billion to cover costs of the reduction.
Bob Moffat, IBM's senior vice president of supply chain integration, declined to specify which countries or office locations were targeted for cutbacks, but said they would be concentrated in Europe.
"Are we rebalancing resources into higher-growth markets?" said Moffat, the executive in charge of the restructuring in an interview, "Absolutely. As any business would so do."
The company said it planned to cut between 10,000 and 13,000 jobs starting in the second quarter, representing roughly 3 percent to 4 percent of the work force at the end of 2004.
Last month, IBM warned job cuts were coming following a bombshell earnings shortfall it blamed on disappointing profits and sales in Japan, Germany, France and Italy, as well as its inability to close deals near the end of the quarter.
The job cuts are a sign that IBM is trying to solve its own troubles, not a symptom of a wider slowdown in the technology sector, said Mark Herskovitz, manager of Dreyfus' Premier Technology Growth fund, which manages $2 billion in assets.
The reductions, while substantial, are a far cry from the scale of job-cutting IBM underwent in the late 1980s and early 1990s, when the company faced a crisis in its core mainframe computer business and cut its work force by more than half.
From a peak of 405,000 employees in 1985, the company's work force bottomed at 219,000 in 1994, in repeated rounds of layoffs that devastated the economy of the Hudson River valley where many of IBM's operations were once concentrated.
IBM, based in Armonk, N.Y., employed 329,000 staff worldwide in December, the last time the company disclosed its total work-force figures. About 100,000 of those jobs were located in its European region.
On Sunday, IBM completed the sale of its PC business to Lenovo Group Ltd. (search) of China resulting in the transfer of another 10,000 IBM PC employees to Lenovo's payroll.
IBM spokesman John Bukovinsky said most of the Europe job cuts would be voluntary and that talks had begun with workers' councils and other organizations on the timing.
"In Europe, we expect to reach most of the objectives through voluntary programs," Bukovinsky told Reuters.
But Herskovitz questioned the company's ability to hit the goal. "I don't know how they are going to get 10,000 people to quit," he said.
Moffat said the latest moves were part of a three-year push to shift IBM employees into high-growth businesses while consolidating redundant back-office operations in each country where IBM operates.
Moffat, the former head of IBM's PC business, said the company is seeking to create global operations centers for a variety of functions that have previously been handled on only a country-by-country or pan-European basis.
The UBS analyst said the scale of severance packages, the amount of savings IBM may realize annual and the potential disruption to expected revenues posed risks to IBM investors.
"Does IBM expect to realize any potential disruptions in Europe given recent protests combined with these moves?" asked Reitzes, who nonetheless rates the shares a "buy" for clients.