John Paczkowski

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Black Thursday at Big Blue [UPDATED]


The ax is indeed swinging at Big Blue. Following reports that it is preparing to cut thousands of jobs in its global services unit, IBM (IBM) said Thursday it has begun notifying employees of what it likes to euphemistically refer to as “resource actions.”

“On March 26, we notified some employees to inform them that some jobs were being eliminated,” a spokesperson said in a statement. “IBM continuously evaluates its mix of skills and resources throughout the year, and makes changes as needed. Managing resources in this way keeps us competitive, while adapting to the evolving needs of our clients. We anticipate that some employees will find other positions within IBM, and we’re helping them in that effort. Those employees who leave IBM will receive separation benefits.”

According to Lee Conrad, spokesman for a union group called Alliance@IBM, “Employees are being notified this morning. We do know that 1,674 employees in the application Services unit will lose their jobs. This is one more in a series of IBM job cuts that have contributed to the downward slide of the IBM USA employee population. We see increases in the shifting of jobs offshore as US IBM employees are terminated.”

All told, some 5,000 staff are expected to be affected by the cuts, most in IBM’s Global Business Services division. An ironic twist of fate given IBM CEO Sam Palmisano’s January all-hands message to employees recognizing the division for its contributions to the company’s latest earnings report:

Under extremely challenging economic circumstances, we had a strong fourth quarter and a great 2008. I want to thank you for everything you have done to help achieve this impressive performance.

Our 2008 results set several records: record revenue of $103.6 billion–the first time IBM has passed the $100 billion mark; record pre-tax earnings of $16.7 billion, up 15 percent from 2007; record earnings per share of $8.93; and record free cash flow of $14.3 billion.

In the fourth quarter we had particularly strong contributions from our services and software businesses and from growth markets. Our two Global Services segments together delivered pre-tax profit growth of 32 percent and margin growth of 4 points on lower revenues compared to 2007. We signed 24 deals larger than $100 million–the highest we’ve seen in quite some time.

UPDATE: Some interesting comments popping up on the Alliance@IBM boards, among them this one, which offers another explanation for “resource actions” like today’s:

“This is not a story about another 5,000 layoffs in the sea of the millions already laid off. That’s exactly how IBM wants you to report it. In fact, the recession and other layoffs are great cover for IBM. The real story is this is not a typical recessionary layoff, pruning poor performers or re-balancing skills for client needs. This is a story about a deliberate and systematic business strategy to replace 15-20K American workers each year with lower-cost BRIC (Brazil, India, China) workers. So far this year, it is approaching 10K (5K in Jan; 5K today) with rumors of more to come in June and in the fall. This is not a story about moving unskilled work to another country. The layoffs have included highly-skilled and experienced professionals–scientists with PhDs, MBAs, seasoned software developers, marketing experts, consultants, project managers and manufacturing workers. This is a story about throwing near-retirement workers into the layoff pool–and using some of the savings (not sent overseas) to hire lower cost & unsuspecting new college grads.”