I.B.M. to Lay Off Over 10,000 in Struggle to Keep Up Profits

The New York Times > Technology > STEVE LOHR: "IBM. announced yesterday that it would lay off 10,000 to 13,000 workers, mostly in Europe, as it struggles to keep up its profits at a time when global competition in the technology business spreads beyond selling computers to providing services.

The cutbacks come after I.B.M. reported disappointing quarterly earnings last month and the price of its shares dropped. But I.B.M. portrayed the move as mainly an evolution in its strategy of globalizing its operations by moving back-office work like accounting and procurement to low-cost locations and pruning operations in high-cost and slower-growth markets like France, Germany and Italy.

That older style of multinational corporation, they said, is being replaced by a leaner global operation, with work being sent digitally across the Internet to where it can be done most efficiently.

I.B.M. employs about 322,000 people worldwide today, after 10,000 I.B.M. workers were transferred to Lenovo of China, which this week completed its purchase of I.B.M.'s personal computer business. So the payroll cuts will amount to 4 percent or less of the work force.

While most of the trimming will come from West European countries, among them Germany, France and Italy, some will also be made in the United States, where I.B.M. employs 120,000 people. I.B.M. did not say how many American workers would be affected.

I.B.M. will take a charge of $1.3 billion to $1.7 billion in the current quarter to pay for severance packages and other payments to the laid-off workers. Wall Street analysts estimate that the cutbacks will reduce I.B.M.'s annual operating expenses by $1 billion or more. The job cuts are expected to be completed by the end of this year.

I.B.M. made the announcement after regular trading ended yesterday; the company's stock price rose 77 cents, to $77.85, in after-hours trading. So far this year, however, I.B.M.'s share price is down 22 percent.

I.B.M. remains a solidly profitable company with nearly $9 billion in cash in the bank, even after the company spent $3.4 billion in the first quarter to repurchase shares and set aside $1 billion more than it did in the same quarter a year earlier to cover its pension obligations to retirees.

Still, I.B.M. reported a profit for the first quarter of 85 cents a share, 5 cents a share below Wall Street's expectations. The shortfall was regarded by investors as a surprising stumble.

In a sense, I.B.M.'s strategy in moving toward services mirrors the course of the American economy. The company depends less on manufacturing than it did in the heyday of mainframe computers as it moves up the economic ladder to helping corporate customers use information technology. Increasingly, I.B.M. researchers and software programmers are put to work for customers redesigning and automating business tasks like procurement, accounting and customer service.

Yet I.B.M. faces increasing competition and price pressure in services from low-cost rivals like Dell, which is rapidly expanding in services, as well as Indian outsourcing companies like Wipro, Tata Consulting and Infosys. Those competitors operate mostly in the mundane but big part of the services industry, which helps companies run their computer data centers. "