Do job-cuts help IBM meet its long-term financial goals?

BANGALORE,INDIA: Is IBM's decision to sack 40-odd employees from its Systems Technology Group here any shocking news for tech industry? Well, that's just the tip of the ice berg, according the analysts.

Analysts estimates, IBM is going to cut 13,000 jobs worldwide, under its ‘resource action' (RA). The layoff plans takes shape as the IT major has reported seven consecutive quarters of declining revenue. IBM's total revenue fell 5 percent to $27.7 billion in the fourth quarter ended December 31.

The job cuts comes after IBM CFO Martin Schroeter's statement that the company will take an approximately $1 billion "workforce rebalancing charge" in the first quarter.

IBM missed estimates for the fourth straight quarter, due to a steep fall in demand for servers and storage products in emerging markets such as China and slow server shipments on spread of virtualization. Revenue from IBM's system and technology unit(STG), which includes servers and storage, fell 26.1 percent to $4.26 billion.

As hardware revenue continues to decline, it is focusing more on software and services in a bid to reignite sales and meet a goal of $20 a share in earnings by 2015. It has also been divesting its less profitable businesses to boost earnings. It has agreed to sell its low-end server business to Lenovo last month for $2.3 billion ( much less than IBM's rumored $6 billion asking price for the x86 ), and looking to sell its chip business also.

UNI Global Union, which represents more than 20 million workers from over 900 trade unions worldwide and the UNI IBM Alliance, the IBM employee organization has criticized the company's move to lay off its employees en masse. "Employees are being pushed out the door in order for executives to reach their goal of $20 earnings per share and greater wealth for them and large stockholders," says a statement by them.

Speculation about the company carrying out a furlough, pay-cuts or lay-off plan surfaced every time the company has reported poor growth over last one year. In the late August last year IBM reportedly asked the majority of U.S. employees in its hardware unit to take a week off with reduced pay.

But how effective are they as a long-term strategy? Industry estimates says, IBM employs 4.3 lakh people worldwide. "How can a 3 percent reduction from 4.3 lakh headcounts help IBM to achieve its long term financial goals? Does it really help them to reach $20 EPS goal?" ask industry watchers.

As it's becoming more difficult to find other areas where IBM can cut costs. The lay-off plan also leaves everyone wondering what to expect next. Is IBM now going to charge the employees for car parking as well? Well, that seems to be a good proposition, as they have sprawling offices across the country and a huge workforce as well.

Alan Tate, head of UNI ICTS said : "IBM needs to go back to its roots and focus on what made the company successful for over 100 years. It needs to invests in its employees and ensure decent work. Innovation is what made IBM a great company not greed."

 

So, is there really a way out besides resorting to lay-off, which is an obvious measure to cut costs? UNI Global Union statement says "Alternatives to layoffs exist for companies looking to cut costs. Retraining programs can yield positive results for both employees and the company, and have been implemented successfully in numerous companies."