IBM To Cut More Than 10,000 Jobs, Incur 2Q Charge

IBM, Armonk, N.Y., also will take a pretax charge of between $1.3 billion and $1.7 billion for its second quarter ending June 30, 2005.

The company ended 2004 with a total of 329,000 employees, an IBM spokesman said. Some 10,000 shifted to Lenovo when that company's purchase of IBM's $11.5 billion PC business was completed last Sunday. The spokesman would not comment on what parts of the business would be impacted by these cuts except to reiterate that most would come in Europe.

In mid-April, IBM announced disappointing earnings for the first quarter, and last week IBM Chairman Sam Palmisano promised "aggressive action" to cut costs and improve performance. He also attributed IBM's problems with closing quarter-ending deals mostly to poor execution.

For its first quarter, the company, which has lost some of its luster with shareholders and analysts, missed estimates by 5 cents per share.

At the same time, IBM's first-quarter net income rose 3 percent to $1.40 billion, or 84 cents per share, from $1.36 billion, or 79 cents per share, a year ago. Earnings from continuing operations totaled $1.41 billion, or 85 cents per share, including stock-based compensation expenses. Revenue grew 3.3 percent to $22.91 billion from $22.18 billion last year.

Last week after Palmisano's statements, analysts said they expected to see layoffs, especially in slow-growth European markets.

Industry observers maintain that while IBM has articulated a strong on-demand marketing message, that has not translated into great sales.

John Marks, CEO of JDM Infrastructure, a Rosemont, Ill., solution provider, said the IBM cuts are another sign of the pressure facing publicly held companies grappling with a sluggish economy.

"The Wall Street pressure on these companies to perform typically leads to significant cuts in underperforming areas," he said. "When public companies like IBM don't make their numbers or have a bad quarter, it seems like the first thing they do is cut.

"I am sure this creates a lot of questions and ambiguity within the IBM ranks no matter where you work--whether it is in the United States, Europe, Asia or South America," Marks added. "If you work for IBM you are not feeling good about your job security right now anywhere in the world."

Marks said it remains to be seen how the cuts will affect the channel but hopes IBM will act in partners' and customers' best interests. He said IBM competitor Hewlett-Packard mishandled its own sales staff reductions in 2004, creating uncertainty among partners and customers.

"I hope IBM handles this better than HP did when they laid off a number of direct-sales reps last year," he said. "That created channel confusion and a lot of neglected customers."

STEVEN BURKE CONTRIBUTED TO THIS STORY