Big Blue Partners See Silver Lining In IBM Layoffs

Reacting to reports IBM has begun laying off as many as 15,000 employees as part of a $1 billion "workforce rebalancing" effort, IBM business partners say Big Blue's loss could be their gain.

IBM solution providers say the job cuts could force the Armonk, N.Y.-based company to rely more on the channel if the company pink slips enough technical and sales specialist that they compete with.

"The more IBM decreases the direct side of its business the more it embraces partners to sell solutions," said Steve Giondomenica, president of CMI (Chouinard and Myhre, Inc) a San Francisco-based IBM partner."That's good for a company like CMI. On the other hand, if IBM's cuts come too close to the bone there could be downside in the field as we typically serve our clients best when we collaborate tightly with IBM’ers in the field."

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Giondomenica and other partners told CRN that if layoffs go too deep they risk disrupting product roadmaps and R&D which could convert upside to downside in the long run.

IBM confirmed to CRN that it's laying off an undisclosed number of its 431,212 employees. The layoffs have been anticipated since last month, when IBM reported it would take a $1 billion ’workforce rebalancing charge’ in the first quarter of 2014. But job cut specifics are hard to come by.

In a statement to CRN, IBM spokesperson Doug Shelton said, "We have been very transparent in reporting our intent to restructure. IBM continues to rebalance its workforce to meet the changing requirements of its clients." Shelton declined to share the extent of the layoffs.

Sources tell CRN that the layoffs will disproportionately impact IBM's hardware-centric Systems and Technology Group. CNET is reporting that nearly 25 percent in the Systems and Technology Group is on the chopping block.

IBM reported its revenues dropped from $29.30 billion a year ago to $27.70 billion in its most recent fiscal quarter. That marked the fourth straight quarterly sales decline for the Armonk, N.Y.-based vendor. IBM's System and Technology Group, which sells mainframes, servers, storage and other hardware, saw revenue drop more than 26 percent to $4.26 billion during the quarter.

NEXT: Widespread Reports Of IBM Job Cuts

"Job cuts started Thursday. We began getting reports in the AM about IBM sweeping job cuts across the U.S. Every division within IBM is feeling the impact from software, global services, and IBM's Systems and Technology group," said Lee Conrad, national co-ordinator for Alliance(at)IBM, an organization run by the Communications Workers of America union that has long tried to organize IBM employees.

Conrad said he has received layoff reports from Arizona, Iowa, Minnesota, New York, and North Carolina. Conrad said layoffs could total 15,000, a figure he based on a report by an analyst at Bernstein Research in New York City that projected IBM's $1 billion "workforce rebalancing charge" translated to between 10,000 to 15,000 layoffs.

Vermont's CBS affiliate WCAX reported that more than 140 IBM employees will be laid off from the company's Essex Junction plant. Alliance@IBM says as many as 15 were laid off at IBM's Endicott, NY offices. Internationally, Alliance@IBM reported that 1,500 IBM employees were let go in Brazil, 600 in Argentina, 480 in France, and 430 in Italy.

"If, at the end of the day, it means IBM relies more on the channel to sell its solutions, than great," said an IBM partner that asked not to be identified. "We are pretty self-sufficient. We just want to make sure when we pick up the phone and need to know what the roadmap is on the next Power server line is, someone at IBM is there to pick up the phone."

IBM's struggles come at a time of major upheavals in the server industry as more OEMs, partners, and companies rely less on hardware and more on the cloud and cloud services.

Dell in October finished a protracted fight to become a private company in a $24.9 billion leveraged buyout to refocus itself on the enterprise and move away from its traditional PC business. IBM, meanwhile, just agreed to sell its x86 server business to Lenovo in a $2.3 billion deal that has been expected for nearly a year.

"As IBM refocuses and lines up its ducks to be the company it wants to be, it's understandable it's going to swallow some tough medicine and reduce headcount," said Ray Scardelli, vice president of sales and marketing for Micro Strategies, a Denville, N.J.-based IBM partner. "Change requires hard choices. But IBM will come out of it leaner, stronger, and faster,"

IBM's Shelton said in an email that the workforce rebalancing is an attempt to position "itself to lead in areas such as cloud, analytics and cognitive computing." To that end, just as IBM sells off its x86 low-end server business, the company has committed $1 billion to commercialize its Watson supercomputer technology. It also spent $1.2 billion to expand its global cloud footprint expanding the number of data centers for it recently acquired SoftLayer cloud platform.

IBM says it has 3,000 job openings related to cloud, nanotech, and "other growth areas in the US."

"I get why IBM needs to make cuts," Scardelli said. "As an IBM business partner who is transforming itself alongside IBM, I want to see IBM realign, refocus, and shift away from its hardware business to business analytics and cloud services. That's where we are headed. If IBM needs to 'rebalance' its workforce to get there, then so be it."