IBM to cut 1,500 jobs in microelectronics unit

Nicole Volpe

NEW YORK: International Business Machines Corp. said on Tuesday it will lay

off 1,500 microelectronics employees, about 7.5 per cent of the unit's work

force, as it rejigs its chipmaking operations amid a slump in the semiconductor

industry.

The move raises to more than 5,000 the number of jobs the world's largest

computer maker has trimmed from its 318,000-member work force in recent weeks as

chief executive Sam Palmisano tries to align costs with customers' reduced

technology spending.

Palmisano, who took the CEO job in March, has pledged to reverse the earnings

and revenue slide at IBM. Late on Monday, the Armonk, New York, company

announced it would exit the hard-disk drive business.

IBM has had to rein in a massive expansion in its chip operation that was

marked by an ill-timed $5 billion investment in late 2000, just as the

semiconductor industry began its worst-ever downturn.

For the first quarter, the company posted a 37 per cent sales in its

technology division, which includes chipmaking, leading many analysts to expect

it to sell some parts of the business. Gartner Inc. research director Tom

Bittman said Tuesday's job cut news surprised him because he had expected IBM to

sell entire plants rather than lay off employees.

"They are trying to skinny back without trying to cut down their product

lines too much," he said. IBM spokesman Bill O'Leary said the company

remains committed to chipmaking, although it may divest parts of the business.

More job cuts to come?



The job cuts are slated for IBM sites in Burlington, Vermont, and in
Endicott and Fishkill, New York, as well as at some satellite offices. IBM

already cut 1,000 jobs microelectronics jobs in November.

Over the past few weeks, the company has quietly trimmed thousands from its

ranks, including 1,000 jobs from its large corporate computer division, 2,000

from global services, and others from financing and operations. Gartner's

Bittman said he expects a few thousand more cuts in global services and in

sales.

A source familiar with the situation has said IBM plans to cut 7,950 to 9,540

jobs overall, or up to 3 per cent of its work force, this quarter. About half of

IBM's $5 billion investment in microelectronics was earmarked for the

leading-edge chip factory being built in Fishkill. That plant will begin pilot

production in August and come on line in 2003, spokesman O'Leary said.

"That $5 billion investment was focused on the high end, and that's the

part of the business that's going to be OK," said SoundView Technology

analyst Gary Helmig.

IBM has said it wants to focus on specialized chips, which may be less

susceptible to the boom-and-bust cycles of the semiconductor sector at large.

Much of the company's recent suffering has been due to plummeting demand for

networking chips.

Looking ahead



O'Leary acknowledged there has been widespread industry speculation about the
chip business' fate, including possible plant closings, a sale or a spinoff.

"The bottom line is that while we are going through a refocusing and

shake-up of the business, we are definitely not walking away from this

business," he said. O'Leary said IBM remains committed to its PowerPC chips

for computers and to custom chips known as ASICs, but may divest other

technologies.

In fact, a source familiar with the situation said IBM is considering a joint

venture at the Burlington plant, but would not consider selling it. The factory,

which has been operating below its capacity, makes aluminum-based chips, which

have seen a drop off in demand compared with those using copper technologies.

IBM said on Monday it will enter a joint venture with Hitachi Ltd., Japan's

biggest electronics maker, which agreed to pay $2.05 billion for the bulk of the

company's money-losing hard disk drive business. The deal will remove 18,000

people from IBM's payroll, and after three years, the company will exit the

business altogether.

On the New York Stock Exchange trade, IBM shares closed at $79.31, up $1.20,

or 1.5 per cent -- near lows set five years ago. The stock has fallen 34 per

cent since the beginning of the year, compared with the broader American Stock

Exchange Computer Hardware Index's decline of 17 per cent.