IBM said Thursday that its plan to cut up to 13,000 jobs will involve selling more pre-packaged solutions through fewer delivery centers.
CFO Mark Loughridge added the details after Big Blue announced sweeping changes, including staff reductions in the sluggish European market and a new emphasis on the booming countries of Asia.
AsiaThe moves are intended to stimulate more profit for the Armonk, New York-based technology leader following lackluster results in the most recent quarter.
“We are increasing the number of pre-packaged solutions and reducing the support staff for what will be fewer delivery centers,” said Mr. Loughridge. “We will lower the cost of delivery centers by taking advantage of the lower-cost regions.”
Many of the changes will occur in the administrative segments of its services business. The company will move many of its back office personnel to “customer facing” positions, while consolidating and standardizing repetitive tasks.
IBM shares fell $0.71 to $76.37 in recent trading. The stock has lost about 16 percent of its value since the end of March and is trading 21 percent below its 52-week high of $99.10, reached on January 3.
A number of large outsourcing clients have complained that traditional outsourcing firms such as IBM and Electronic Data Systems have stuck with inefficient delivery methods, despite numerous opportunities to standardize and save money.
Electronic Data SystemsSome, like General Motors, have threatened to take the initiative and break up their large contracts into smaller, more manageable pieces rather than make available the large multibillion-dollar, soup-to-nuts contracts that have become the staple of the industry. But IBM seems to have incorporated that thinking into its restructuring.
General Motors“Services represent about 78 percent of the reductions. We are trying to consolidate repetitive delivery tasks,” said Mr. Loughridge.
The changes will result in a restructuring charge of $1.3 billion to $1.7 billion in the second quarter, the company said in a statement released late Wednesday. The reorganization calls for the company to revamp its operations in Europe by “reducing bureaucracy and infrastructure in lower-growth countries” with a focus on local operations.
reducing bureaucracy and infrastructure in lower-growth countries” with a focus on local operations
“This eliminates the need for a traditional pan-European management layer to coordinate activity,” the company said. “As a result, IBM will create a number of smaller, more flexible local operating units in Europe to increase direct client contact.”
Although it will eliminate thousands of jobs, IBM remains one of the largest employers in technology. It currently has about 329,000 workers.
IBM spokesman John Bukovinksy said the company will focus more on emerging markets, like Brazil, China and Russia, where IBM’s service business grew 18 percent last quarter. It will also emphasize “business transformation,” in which IBM will take over core services for businesses.
In April, IBM announced disappointing earnings of $0.85 per share in contrast to the $0.90 that Wall Street analysts had expected, and the company had been expected to take steps to increase profit through a restructuring.
“I’m sure they [had] been planning this long before [the quarterly earnings announcement] happened,” said analyst Rod Bare of Morningstar. “I think the quarterly results highlighted the need for this to happen, for them to re-allocate resources from low-return areas to high-return areas.”
The company’s global services sector was the only bright spot in its report for the quarter that ended in March. Global services rose 3 percent to $11.7 billion over the same period a year earlier. Mr. Bare said that more customers are moving toward standardized IT services, and that IBM has long been strong in this market.
“This has always been important to IBM. Services has been a way for IBM to get in the door, do some consulting, maybe a little cross-selling,” said Mr. Bare.