IBM Plans Product Line Divestitures, Employee Cutbacks After Disappointing Q1


Get ready for some major changes at IBM.

Following first-quarter financial results that IBM executives acknowledged were "disappointing," CFO Mark Loughridge, in an earnings call with financial analysts Thursday, indicated that employee layoffs and divestiture of poorly performing businesses are planned for the current quarter.

For the first fiscal 2013 quarter ended March 31, IBM reported revenue of $23.4 billion, down 5 percent from $24.7 billion in last year's first quarter. Net income was $3.0 billion, down 1 percent from $3.1 billion one year earlier.

"There are parts of our business that are in transition or have been underperforming, like elements of our Power, [System] x and storage product lines that showed disappointing performance in the first quarter," Loughridge said. "Here we're going to take substantial actions," he said, without offering details.

 

[Related: IBM In Talks To Sell x86 Server Business To Lenovo]

Thursday CRN reported that IBM is in active negotiations to sell its x86 server hardware business and Lenovo is the top candidate to buy it.

Asked about that report by an analyst, Loughridge said: "I'm obviously not going to comment on rumors."

But at several points during the earnings call the CFO referred to coming "divestitures" and made it clear that "workforce rebalancing," which is IBM-speak for layoffs, is planned for the current quarter. He said one-time charges for costs associated with those cutbacks will be taken against second-quarter results.

Last year, IBM spread out staff cutbacks throughout the year, Loughridge said. "But given our first-quarter performance, we now expect to take the bulk of our workforce balancing actions for the year in the second quarter." He said those cutbacks -- the company does not yet have a "specific approved action," he said -- and the resulting charges will have an impact on second-quarter earnings.

Loughridge blamed IBM's quarterly results on the company's inability to close a number of big contracts -- valued in total around $400 million -- for IBM software products and mainframe systems.

"This quarter certainly didn't close the way it started," the CFO said. "We had solid profit performance in January, but as the quarter ended hundreds of millions of dollars of very profitable software and System z mainframe deals fell short of the goal line. This impacted the first-quarter close. But the rollover of these deals positions us for a strong start in our software and mainframe business in the second quarter."

Loughridge blamed the problems on "a shortfall in sales execution in our software and mainframe businesses." He said the company had taken steps to improve that execution, but didn't offer details.

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