International Business Machines
) has stepped up its efforts to rein in its cost by laying off
workers across its divisions. IBM posted disappointing Q1 numbers
and reported 5% y-o-y decline in revenues to $23 billion. IBM also
posted 1% y-o-y decline in net income to $3 billion in Q1. CFO Mark
Loughridge had announced that IBM will embark on a "workforce
rebalancing" or job cuts. While IBM estimated that rebalancing will
cost $1 billion in severance and other charge this year, this cost
is meaningfully higher than the $803 million spent on workforce
restructuring in 2012. We estimate that the IBM will incur 88 cents
per share in cost due to workforce rebalancing. However, we expects
that cost saving benefits from this restructuring efforts will
materialize in the second half of 2013.
See our full analysis on IBM
Broad Workforce Reductions
IBM's headcount stood at 434,246 employees globally at the end
of 2012. People closely following the developments have revealed
that 6,500 -8, 000 people could be laid off this year. This
translates into a headcount reduction of close to 2% for IBM. While
initial reports from the IBM's Union Labor in U.S. suggest that IBM
laid off 2940 workers in North America, IBM plans to lay off 1500
employees in Australia. Additionally, IBM has eliminated about 128
jobs in Denmark, 250 in Italy and 700 in Germany, among other
countries. IBM also plans to lay off employees in Asia Pacific
region, India and Latin America.
Jobs Cuts Primarily In Ailing Division
The union claims jobs across some 43 divisions of the IBM have
been cut, with the highest job cuts from its system and technology
group which includes server, storage and microelectronics division.
The system and technology group had reported 17% decline in
revenues and an EBT loss of $405 million in Q1.
Considering the job cut figures, we believe that IBM is looking
to rebalance its business away from weak businesses and markets
where its expects lower returns on investment. Additionally, IBM
has stated in its 2015 road map that it is focusing on higher-end
integrated systems designed for cloud computing, analytics and big
data. Considering the nature of business of these services, these
vertical employ less number of personnel albeit with more
sophisticated skill set. We, therefore, believe that IBM will
continue to cut jobs that can be automated and outsourced to
contract workers at its ailing division going ahead.
We currently have a
$210 Trefis price estimate for IBM
, which is about 7% higher than the current market price.
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