While declining to spell out exactly when his company will do so, IBM CEO Samuel J. Palmisano Wednesday acknowledged that his company needs to look at improving productivity by reducing employee headcount.
In his first public meeting with financial analysts Palmisano, who succeeded Louis Gerstner as CEO in March, did not contradict speculation that, in the wake of continued slow down in IT spending by enterprise customers, IBM will reduce employee headcount by about 20,000, about six percent of IBMs total employees.
"We need to look at headcount," Palmisano told financial analysts. In answer to a direct question about whether IBM could be expected to cut about 20,000 employees, Palmisano in New York said, "That analysis is a good one. Its absolutely appropriate at a macro level."
Palmisano declined to be specific about from which IBM business units the cuts would come, or when they would be announced. In fact, he said, if the company suspended hiring, it could expect to reduce headcount by 15,000 over an unspecified period.
He also did nothing to dispel widespread speculation that IBMs OEM hardware businesses—specifically its merchant semiconductor operations—would be high on the list of business units subject to cuts. A year ago IBM was pushing to increase semiconductor output by 50 percent, and OEM customers were screaming that they couldnt get enough product, Palmisano said. Today, in the wake of the recession and reduced IT spending, the semiconductor industry is saddled with overcapacity.
As a result, in its semiconductor operations, Palmisano said, "[We] need to make some adjustments. Short term we will drive earnings by driving efficiency and productivity."
Palmisano also said that as enterprise customers shift the requirements toward fully-integrated, services-based solutions, IBM will need to look at productivity improvements—including headcount reductions—continuously.
"We are going to continue to drive out of IBM $1 to $2 billion of costs every year," he said. "That is the nature of the business…Weve been through this before. We understand how to do it strategically, not just mindlessly. Were going to constantly have to drive productivity."
Still, IBM expects to see an upturn in IT spending as the recession subsides, Palmisano added. The company, he said, has detected among senior enterprise managers no backing away from the idea that information technology is a driver of innovation and productivity.