IBM CEO suggests job cuts in wake of weak outlook

NEW YORK: International Business Machines Corp.'s new chief executive told

employees late last month that the outlook for technology demand in 2002 and

even 2003 was weak and suggested that the company would make job cuts, according

to an investor newsletter.

Sam Palmisano, who took over the CEO job from Louis Gerstner on March 1, was

quoted in Robert Djurdjevic's newsletter as saying in a speech that "it's

clear that the industry is not bouncing back this year" and that "it's

not going back to (growth rates of) high single digits or teens."

Looking out further, Palmisano said, "it's not going to be growing at 10

or 11 per cent next year either," according to the newsletter.

IBM, the world's largest computer maker, has seen its growth slow in recent

quarters as the broad decline in capital spending hit its revenues and earnings.

In early April, the company reported its worst quarterly decline in earnings

since it emerged from losses in 1993.

A speech by Palmisano was broadcast to the company's 318,000 employees on

April 24, IBM spokeswoman Carol Makovich said. Makovich would not disclose the

contents of the speech, however, saying that Palmisano's comments were

consistent with what the company had told Wall Street analysts during its

earnings conference call on April 17.

The April 17 call was led by chief financial officer John Joyce, who said he

was comfortable with analysts' estimates for 2002 earnings of $4.16 per share on

revenue of $83 billion. Bear Stearns analyst Andrew Neff said it sounded like

Palmisano "is trying to set the tone for his new regime. He's trying to set

a tone of urgency."

It wasn't clear that Palmisano broke any ground in the speech, Neff said,

adding that if the company were going to hit its earnings number, it would have

to cut costs.

According to the newsletter, Palmisano suggested in the speech that because

of the downshift in growth, Armonk, New York-based IBM might need to make job

cuts because companies aren't buying as much technology as they had in the

1990s.

"We were building up investments in the company that were based on the

assumption that we would have huge robust growth that is not out there any

more," he was quoted as saying, adding that the company would have to

"pare back." IBM has cut jobs in some divisions, such as

microelectronics, in recent years as part of a work force rebalancing. For

instance, it cut 1,000 people from its semiconductor division in November.

An edited transcript of the speech appeared in a newsletter from Djurdjevic,

who is president of Phoenix, Arizona-based Annex Research, on Monday.

Combined with other speculation about a restatement of earnings and

speculation on the departure of Joyce, it dragged the stock Monday through an

important support level at $80 and down 7 per cent, according to Salomon Smith

Barney analyst Richard Gardner.

"We DO NOT expect an earnings restatement and would be surprised to see

John Joyce leave. On the other hand, we would be surprised if IBM's recent 10

per cent revenue shortfall did NOT prompt management to take a hard look at

structural costs," Gardner wrote in a research note.

IBM declined to comment on market rumors or on the analysts' report.