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IBMs restructuring plans, which will include 10,000 to 13,000 job cuts, will save the company $300 million to $500 million in the second half of the year and two to three times that in 2006.
Mark Loughridge, IBMs senior vice president and chief financial officer, said in a conference call last week that the amount of savings this year will depend on how quickly the job reductions occur. The cuts will represent more than a 3 percent reduction in IBMs 329,000-person global work force. They will also result in a charge of $1.3 billion to $1.7 billion next quarter.
Most of the job cuts—up to 70 percent—will be in Europe, and IBM is working with various labor groups there to implement the work-force reductions. Loughridge said he expects most of the cuts in Europe to occur through voluntary programs, although many elsewhere will come through layoffs.
Officials at IBM, of Armonk, N.Y., warned the industry last month—when announcing disappointing first-quarter earnings results—that the company would undertake significant restructuring plans. “[Last weeks] announcement lays out our plans,” Loughridge said. More details will be released when IBM announces second-quarter earnings in July, he said.
Loughridge added that the restructuring is not simply a reaction to the first-quarter financial results but also part of a larger push by IBM to focus more on high-margin, high-end parts of its business, such as enterprise hardware, services and software.
An early indicator of that focus was IBMs decision to sell its PC division to Chinese computer maker Lenovo Group Ltd., a $1.75 billion deal that closed last week. IBM got out of a highly commoditized, low-margin business, Loughridge said. The company also shifted about 10,000 jobs from IBM to Lenovo.
The restructuring also has to do with making IBM—in particular, its services business—more responsive to customer needs and competitive demands, Loughridge said. It will eliminate many higher-level management jobs in the services business, especially in Europe, and put more focus on jobs closer to customers, Loughridge said.
“We are driving the decision-making authority much lower in the organization and bringing it much closer to our clients,” he said. “Less hierarchy and a more streamlined process will create efficiencies.”
Most of the restructuring changes will be put in place after IBM releases second-quarter earnings results in July, Loughridge said.