IBM Layoffs Not As Dramatic As Rumored

February 9, 2015 Timothy Prickett Morgan

It is the beginning of a new year and this is the traditional time for IBM, which reported its financial results for the fourth quarter a few weeks ago, to do what it calls “workload rebalancing” or initiate “resource actions.” Those are euphemisms for employee layoffs, which have varying effects on IBM i shops. Some years, like last year, the Power Systems business takes some hits, in other years, different parts of Big Blue do.

Last year at this time, IBM set aside $1 billion for layoffs, which affected between 13,000 and 15,000 of its worldwide employee base of 434,000. More than two decades ago, when IBM was in serious financial trouble and had to bring outsider Louis Gerstner in from American Express to fix the company, IBM was roughly the same size and about half of its employees were in the United States. These days, IBM has well over 100,000 employees in India and less than 100,000 in the United States, and it has not talked about the physical location of its employees in the aggregate for many years because this is a hot button for lots of Americans. IBM just moved 7,500 employees over to Lenovo Group with its System x division sale, and another group went over when the IBM Microelectronics division was sold to GlobalFoundries last fall as well. These people are not counted in any layoffs, obviously, but they do reduce IBM’s headcount. Or more accurately in this case, they give IBM room to hire more people in the remaining divisions to push security, mobile, data analytics, and cloud products, which Big Blue is focused on. In any event, IBM announced that it would take a $600 million workload rebalancing charge in the fourth quarter of 2014, which should mean thousands of employees are being let go. If you do the math and all job cuts were equal (which they are not), it would mean somewhere between 8,000 and 9,000 workers in the latest layoff.

IBM does not publicly comment on where it is making its job cuts and does its best to keep the thresholds well below whatever numbers each state has that would trigger an official Worker Adjustment and Retraining Notification (WARN) reporting of those cuts to state agencies. You have to let go of 500 or more employees at a site or at least 33 percent of workers for smaller sites to trigger a WARN report. Because of these reporting requirements and the vast number of IBM facilities worldwide, IBM can get in below the radar and not have to tell anyone anything. That leaves the Alliance@IBM, the official site for the unionizing effort for IBM’s employees in the United States, as the conduit through which IBMers who have been RA’d, as they say inside the company, tell their stories and we get some sort of count by country and division.

Lee Conrad, who runs the Alliance@IBM effort as Local 1701 (yes, that is the number for the Starship Enterprise) of the Communications Workers of American union, gave me the heads up that layoffs were starting on January 28. IBM is no longer supplying the Older Workers Benefit Protection Act (OWBPA) reports to those laid off, which listed the job titles, business units, and number of people affected in each group of layoffs, and people used to turn them in to Conrad where he could compile them and build a picture of what was going on. Conrad could confirm that IBM had about 250 layoffs in its Boulder, Colorado facility, about 150 from its Columbia, Missouri, facility, and about 202 from its Dubuque, Iowa, facility.

Details of employment levels at the Boulder facility were reported in the Daily Camera and pegged the local workforce at around 2,800. IBM peaked at around 1,300 employees at the Dubuque global delivery facility in 2011, according to a report in the local Telegraph Herald Online newspaper and it will have around 600 to 650 after this round of cuts. The Columbia Tribune, reporting from the Missouri town where IBM has had a service delivery center since 2010, reported last week that in the wake of the layoffs, the Missouri Department of Economic Development to review the incentives that Big Blue got. Among other things, IBM got the right to use a city-owned building in Columbia for its offices for a decade for $10, something that cost the city $3 million to build. So far, IBM has received $10.3 million of a total incentive package between 2010 and 2020 that weighs in at $31.2 million.

A few days after the cuts were announced, Conrad emailed The Four Hundred saying that he had heard from unnamed sourced that IBM had eliminated around 4,900 jobs in the United States and Canada in this round of layoffs. It is unclear if there is another round coming, but the word on the street is that IBM wants to be done with its workload rebalancing by the end of February.

“Transformation on this scale requires IBM to continually remix skills–our clients expect no less as they look to IBM to help them take advantage of these innovations and new technologies,” IBM said in a statement about the job cuts once the rumor mill was fired up and fueled by a report in Forbes that suggested Big Blue was going to cut 26 percent of its workforce, which was probably around 420,000 after last year’s layoffs and the divestitures to Lenovo and GlobalFoundries. Then the statement went on to say this: “Last year, IBM hired 45,000 people, and the company currently has about 15,000 job openings around the world for new skills in growth areas such as cloud, analytics, security, social, and mobile technologies.”

Well, if IBM hired 45,000 people, it must have fired more than 45,000 people to keep a more or less balanced number of employees worldwide. We certainly did not hear of 45,000 layoffs or see charges for that. Perhaps IBM is talking about the number of employees it also got through acquisitions? This is what happens when IBM doesn’t just say what it is doing and give out the numbers, which WARN requirements or not all public companies should have to do if they are laying off one employee or 100,000.

On the face of it, given IBM’s actual financials, the idea that IBM would lay off somewhere between 110,000 and 120,000 employees is just ludicrous, and anyone who lived through IBM’s self-described “near death experience” in the early 1990s, when the IT industry was also undergoing jarring change, knows the company is not anywhere as bad off now as it was then. IBM also, however, has a lot less account control in datacenters than it enjoyed 25 years ago and is in many parts of the IT sector searching for relevance and revenues. Back then, IBM had posted the largest losses of any company in the history of business and the largest layoffs in history, too, at 63,000 employees. Over the early years of the 1990s, when the mainframe business hit the wall and Unix and X86 systems took the datacenter by storm. In 1991, IBM shed around 30,000 employees and booked a $3.4 billion charge, pushing it to report a $2.8 billion loss. In 1992, IBM’s revenues shrank a bit, but it lost nearly $5 billion and the employee count dropped nearly 43,000, just above 300,000 people worldwide and down by close to 100,000 people. In 1993, a truly awful year for IBM, revenues trended down by a few points, but IBM shed another 45,000 employees and posted a stunning $8.9 billion in restructuring charges and an $8.1 billion loss against $62.7 billion in sales; chairman and CEO John Akers retired in April that year and Gerstner was brought in. In 1994, while IBM was able to boost revenue by two points to $64 billion and post a $3 billion profit, the pink slips kept rolling and the employee count shrank to 220,000, a loss of another 36,000 employees that year. In 1995, IBM created Software Group and Server Group and acquired Lotus to build out its software business, and the Gerstner era of focusing on selling services and software began. By 2000, when Gerstner retired, IBM had 316,000 workers worldwide, revenues of $85 billion, and net income of $8.1 billion.

Heaven knows IBM is very generous with the stock buybacks and I have been plenty vocal about the financial engineering that Big Blue has done from 1995 through 2014 to prop up its earnings per share as if this was the only thing that mattered. Sure, Wall Street loves EPS, but the huge sums of money that IBM has squandered on its own shares to make itself look healthier than it is are the same kind of hubris that made Akers believe the mainframe-dominated IBM he knew in the 1980s would continue growing linearly with its minicomputer sidekick for midrange businesses. To its credit, IBM has been in a perpetual churn of divestiture and acquisition to transform itself for the past 20 years, trying to remain relevant. The problem with this is that the change never ends, that IBM is not something, but always becoming something.

Some days, it is exhausting to watch. But that is the nature of the IT market. While IBM is not laying off 100,000 people this week or next, if it cannot fight in cloud, social, mobile, and analytics and actually generate revenue growth and real profit growth, Wall Street and perhaps customers will abandon it. And this is probably what keeps IBM CEO and president Ginni Rometty awake at nights. (As the president of a company dedicated to a legacy platform, I have some of the same stresses, so I have nothing but compassion for IBM’s continual transformations. I have done my share of those in the past 20 years, too, to remain relevant, and it is exhausting. As I have joked to the employees at IT Jungle, our logo says “Survive, Adapt, Thrive” when it really should say “Survive, Adapt, Repeat” because we never quite get to the “Thrive” part.)

At the same time, IBM has missed huge opportunities, particularly in understanding that the consumer is the new IT, and it is hard to make up for those misses. But there is still plenty of infrastructure and expertise that will be needed to build modern systems, and therefore so as long as IBM keeps adapting, it can stay alive. That is hard for a 100-year-old to do, for sure. But IBM still has assets to deploy, both in terms of capital and brain power, and it has a chance to recreate itself and get its share of IT budgets. I wouldn’t count Big Blue out just yet. Let’s see how 2015 and 2016 go.

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