Report: IBM to Cut a Quarter of Hardware Workforce

Source: http://www.flickr.com/photos/lisboncouncil/

Source: http://www.flickr.com/photos/lisboncouncil/

International Business Machines (NYSE:IBM) has had a rough time in recent years as CEO Ginni Rometty tries to improve the company’s profitability in a market that has turned away from hardware towards cloud-based computing services. This transition period has resulted in some heavy layoffs. The latest round of job cuts was confirmed to CNET on Friday.

“As reported in our recent earnings briefing, IBM continues to rebalance its workforce to meet the changing requirements of its clients, and to pioneer new, high value segments of the IT industry,” IBM spokesperson Doug Shelton told CNET in a statement. “To that end, IBM is positioning itself to lead in areas such as cloud, analytics and cognitive computing, and investing in these priority areas.”

IBM didn’t itself confirm the number of people who would be laid off, but an anonymous source familiar with the matter told CNET that the company is planning to cut 25 percent of its hardware division, the part of the company responsible for making IBM’s servers. IBM has already been laying off employees as a part of the ongoing restructuring, with the most recent cuts happening earlier this month in India. At the time, IBM confirmed to an Indian newspaper that it planned to lay off 150,000 workers globally, but didn’t say how many employees would be let go in India specifically.

The company seems to be attempting to move away from hardware entirely. Last month, it was announced that the Chinese PC maker Lenovo (LNVGY.PK) plans to purchase IBM’s low-end server unit, and some have speculated that the company will sell its iconic semiconductor chip business entirely. The company is shifting its focus to other ventures, and has recently made big investments in its Watson artificial intelligence technology and cloud computing. Just this week, IBM announced that it has purchased Cloudant Inc. to boost the company’s database-as-a-service options.

“Already this year we have committed $1 billion to our new Watson unit and $1.2 billion to expand our Cloud footprint around the world,” Shelton said, defending the company’s decision to layoff workers, per CNET. “In addition, just this week IBM announced a $1 billion investment in platform-as-a-service Cloud capabilities, as well as investments in areas such as nanotechnology which will bring hundreds of new jobs to New York state.”

“This also creates new job opportunities at IBM,” Shelton continued. “At any given time, IBM has more than 3,000 job openings in these and other growth areas in the U.S.”

Last month, IBM reported its seventh-straight quarter of losses and executives announced that they would give up their bonuses for 2013 as the company continues to struggle. IBM’s earnings release showed that revenue declined 5.5 percent to $27.7 billion, below the $28.25 billion projected by analysts. Annual revenue was equally as grim; coming in at $99.8 billion, sales decreased for the second straight year and failed to surpass $100 billion for the first time since 2010.

IBM has set a short-term growth goal of reaching earnings of $20 a share in 2015, up from the $16.99 seen in 2013. Analyst Soni Sacconaghi from Bernstein Research said earlier this month that he expects the company to make that goal, but he is still concerned about IBM’s prospects for the long-term. “With strong cost cutting and significant share buybacks (we expect the company to spend $15B on repurchases in FY14, and to front-load them), many investors expect IBM to hit its $20 EPS target, but remain concerned about the long-term health of the business,” wrote Sacconaghi in a research note earlier in February.

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