IBM Plans Massive European Layoffs Ahead Of ‘NewCo’ Spin-off: Report

IBM plans to cut about 20 percent of its European workforce with the heaviest blow to fall on technology jobs in the UK and Germany, as it prepares to roll out “NewCo,” the company told labor representatives in the European Union, according to Bloomberg.

Bloomberg reported that the 10,000 job cuts in Europe would be complete by mid-2021.

IBM referred CRN to a statement the firm released to Bloomberg. In a statement to the news outlet, Big Blue pointed to “staffing decisions” to provide the “best support to our customers” in adopting an open hybrid cloud platform and AI capabilities. “We also continue to make significant investments in training and skills development for IBMers to best meet the needs of our customers,” said IBM.

IBM reportedly told European labor reps that it will cut jobs in Slovakia, Poland, Italy, and Belgium as well as the UK and Germany.

The job cuts are thought to be an effort to streamline IBM’s systems integration business ahead of a spin-off CEO Arvind Krishna announced in October.

Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top channel investment advisory dealmakers, said IBM “can’t cut enough.”

“They’ve had too many people for 30 years. It‘s been one gigantic layoff after another. So, hopefully, a new broom sweeps clean,” he said. “The answer for IBM is that they must have a simpler business model. So by spinning out assets and units, that’s a smart thing to do. They should have done it 30 years ago. They can’t cut enough.”

The new business will separate the New York-based technology giant’s managed service unit into a separate company which is being referred to as NewCo.

During IBM’s third quarter earnings call in late October, CFO James Kavanaugh told analysts that it planned to “streamline our business” ahead of the spin off in the fourth quarter, and pegged the restructuring costs at about $2.3 billion.

“We are taking structural actions to simplify and streamline our business and as we discussed earlier this month, we expect a fourth quarter charge to our operating results of about $2.3 billion,” he said during the call. “The savings from these actions will be reinvested in areas like hybrid cloud, data and AI, security, and emerging technologies. With our focused, hybrid-cloud-platform strategy, and the increased investments starting now, we expect to drive sustainable mid-single-digit growth after the separation of NewCo is complete.”

With a $60 billion services backlog, IBM called NewCo the “world’s leading managed infrastructure services company.” The services spin-off will have revenue of $19 billion with more than 4,600 clients in 115 countries including more than 75 percent of the Fortune 100.

After the spin, IBM will hold on to $8 billion from the GTS cloud services consulting business and its $16.63 billion Global Business Services unit with business, strategy and technology consultants that help customers bring existing applications up to date.

Krishna said by holding on to Red Hat, IBM can now focus entirely on the $1 trillion opportunity in the hybrid cloud market.

“Now is the right time to create two market-leading companies focused on what they do best,” he said in a statement describing the spin-off. “IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater ability to design, run and modernize the infrastructure of the world’s most important organizations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities—creating value for clients and shareholders.”

Once the spin-off is completed, IBM will move from a No. 1 ranking on the 2020 CRN Solution Provider 500 list of North America’s largest solution providers to No. 2 behind Accenture.