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IT vendor layoffs: The axeman cometh

IBM, Intel, and Sun slice and dice

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Comment The IT vendor community in the United States was mostly immune from layoffs that happened over the course of 2008, when 2.6m people lost their jobs. But that is obviously changing as the global economy, which IT vendors depend on, continues to weaken. And this week the layoffs, some rumored and others announced, are actually happening.

Rather than make a formal announcement and cop to itself, to Wall Street, and its employees that it is making layoffs despite what it heralded as a stellar 2008, IBM is sticking to its practice of doing tactical "resource actions" within departments throughout its geographical regions.

This way, IBM can maintain that this is all part of its normal course of business and, perhaps more importantly (at least if you are an IBM shareholder), try to get Wall Street on board with the idea that despite the state of the global economy, Big Blue can bring $9.20 per share to the bottom line in 2009 and somewhere between $10 and $11 per share in 2010.

When the company reported its fourth quarter financial results on Tuesday this week, IBM's top brass reaffirmed that it can make these numbers, and layoffs are part of the picture even if they didn't admit it. For weeks now, rumors have been running around that IBM would cut somewhere between 10,000 and 16,000 people, or between 2.5 and 4 per cent of its 400,000-strong global workforce, would be cut from the payroll.

These numbers appear to be high, but again, given the stealth nature of IBM's cuts, it is hard to say. What we do know is that layoffs at IBM have begun, and IBM is not waiting until January 23, as the rumors from several weeks ago had suggested.

"Rumors were true," one Reg reader and IBMer wrote this morning. "The layoffs have started and IBM is still denying it to the press. Dozens of people at my location (about 150 employees here) received their pink slips today. They have 30 days to find a new job within IBM or they will be officially on the dole. I have also spoken to an employee at another location. Their entire group of 30 was given their 'resource action' notice today. Doesn't matter what IBM is saying publicly. It's happening."

Another IBMer wrote this morning, and she still had her job while many others did not:

"The axe fell today for quite a large number of IBMers where I work (Austin, TX - USA), not the 23rd. I would know because I am one of them. Of course this is after IBM posted revenues yesterday that exceeded $100 billion for last year. The best year they have had to date. I doubt anyone will notice what IBM is doing today because of all the left over inauguration news and their earnings report. Oh BTW - IBM's stock is up. That will make them happy and reassure them they are doing the right thing. Thanks for keeping it real."

Mark Loughridge, IBM's chief financial officer, said on Tuesday in a call with Wall Street analysts that in a normal year, it has somewhere between $300m and $400m in restructuring charges related to "workforce rebalancings", and then quickly added that IBM did a "little north of $700m" in 2008. Loughridge did not say how much in restructuring charges IBM would book in 2009, but he did say that given the revenue declines the company expected in the first half of 2009, layoffs - er, resource actions - would be front-loaded in the year.

If you assume IBM takes a $100,000 charge per employee on average and that the company will take the same $700m in charges, that should be around 7,000 employees, or about 1.8 per cent of its global workforce. The other rumor from a few weeks ago was that IBM's layoffs would hit its operations in the US particularly hard. IBM, of course, has no comment on any of this aside from the remarks made by Loughridge.

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