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IBM furloughs hardware workers for a week to cut costs

Rometty and Rosamilia tighten others' belts to make the numbers

Internet Security Threat Report 2014

New IBM System and Technology Group chief Tom Rosamilia and his boss, CEO Ginni Rometty, are tightening the belts of Big Blue's hardware business so that it can make its numbers in the current or future quarter.

Rumors were going around that IBM was going to put employees working in the Systems and Technology Group on furlough in August or September to cut costs. As it turns out, those rumors are true.

According to an IBM spokesperson, the majority of the employees working in the Systems and Technology Group, which makes chips, servers, storage, and networking products, are being told to take a mandatory week off from work. The furlough affects employees in the US, and also will include employees who work for IBM's Integrated Supply Chain division supporting the hardware unit in getting the parts it needs to make its gear.

IBM did not provide a figure for the number of employees affected, but the spokesperson did say that the week-long furlough would start either on August 21 or August 31. The executives in Systems and Technology Group will not be paid for that week, and those put on mandatory leave will get a third of their normal paycheck for that week.

"In lieu of other options considered, this approach best balances the interests of employees and the competitiveness of the STG business," the spokesperson told El Reg in a statement.

IBM's employees, who have seen thousands of their peers get pink slips, would no doubt agree. But it is still no fun seeing your pay cut or being told when to take vacation.

Systems and Technology Group has been under pressure in recent years as the market for Unix and proprietary servers based on IBM's Power processors has been on the wane. Even though IBM has dominant market share by far in the Unix racket, that market has been declining faster than Big Blue can grow market share.

IBM has also lost the business of supplying chips for Sony, Nintendo, and Microsoft game consoles to AMD with the latest round of machines, and both the Power and MIPS chips that have been popular in embedded systems in cars, military gear, and medical equipment are now seeing intense competition from x86 and ARM alternatives.

In the first quarter, the hardware unit at IBM had a revenue slip in excess of $400m, thanks in large part to a bunch of mainframe and related software deals getting pushed out to the second and third quarters. In that quarter, IBM's revenues for STG were $3.11bn, down 17 per cent, and the company reported a pre-tax loss of $405m. IBM said at the time that it would do layoffs – what it calls "workforce rebalancing" or "resource actions" – to get things back in line. And in the second quarter, STG had sales of $3.76bn, down 11.8 per cent – but if you ignore the costs of the layoffs, then the hardware biz had a pre-tax income of $62m.

Whatever changes IBM made were obviously not enough, but at least the company did not resort to more layoffs. ®

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