IBM Job Cuts Affect 14,000 Workers, Analyst Firm Estimates - InformationWeek

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IBM Job Cuts Affect 14,000 Workers, Analyst Firm Estimates

Financial analyst firm Bernstein has estimated that at least 14,000 workers will be affected by IBM's Q1 job cuts. IBM has declined to provide details on the size of a "workforce rebalancing" effort, which employees have said began March 2.

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A week after IBM began laying off workers as part of a "workforce rebalancing," a financial analyst firm has provided an estimate of how many jobs the company may end up cutting -- 14,000.

Early reports had said that a third of IBM's workforce was at risk for cuts, a number that IBM has since called "completely outlandish and untrue." IBM declined to provide an actual number of jobs targeted for cuts, but noted that the company hired 70,000 people in 2015 and currently has 25,000 open positions around the world, including in the US.

Now, Bernstein analyst A.M. (Toni) Sacconaghi has released an estimate that IBM's job cuts could total more than 14,000 in the first quarter. He shared the job cut estimate number in a report sent to Bernstein clients and members of the press on March 8.

(Image: MarsBars/iStockphoto)

(Image: MarsBars/iStockphoto)

How did Bernstein and Sacconaghi arrive at the 14,000 number? Sacconaghi noted in his report that IBM has historically matched big one-time gains (such as asset sales) with workforce cuts. The gain is used to offset one-time costs related to the job cuts.

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Think of it as an old-fashioned balance scale, with the one-time gain on one side and the job cut charges on the other side.

To arrive at the headcount job cut estimate, Bernstein took IBM's historical cost to cut one employee -- $70,000 -- and evaluated it based on a $1 billion gain that IBM has realized in conjunction with a settlement with the Japanese Tax Authority. The settlement was reported in the company's 10-K report, filed February 23. Bernstein noted that IBM's guidance for 2016 already includes the $1 billion Japanese Tax Authority settlement.

Divide $1 billion by 70,000 and you get a little more than 14,000 employees to be cut.

Sacconaghi wrote that the actual number of job cuts could end up being greater than 14,000, based on what affected employees are saying about the severance package this time around.

"Given various reports that IBM is providing much lower severance in this rebalancing (1 month vs. up to 6 months based on tenure historically), it is possible that the workforce reduction number could be materially higher than this estimate," Sacconaghi wrote in the report.

For affected workers, any layoff is traumatic and painful. It doesn't matter how big it is if you are the person getting the bad news. Currently, the Facebook page Watching IBM, run by Lee Conrad -- who also ran the now defunct [email protected] site -- is serving as a communication hub for workers who have gotten the bad news. Last week, Conrad told InformationWeek that he'd received hundreds of emails and hundreds of messages from affected employees.

The Stock Trader Viewpoint

Stock traders tend to view job cuts very differently than workers do, however. Traders often view job cuts as a positive sign, if a company can reduce overall operating costs without impacting overall operations.

The Bernstein report said IBM can achieve an annual savings of $1 billion in operating costs through this "workforce rebalancing," noting that according to Bernstein's estimate IBM "captures about 50% of the gross savings to its bottom line, as the company typically rehires employees in offshore locations."

Bernstein's goal in doing this math is to determine whether or not IBM's earnings per share guidance of "at least $13.50" for the year is realistic. Bernstein noted that IBM has missed its full-year guidance in each of the last two years. And Bernstein's own forecast for IBM's full-year earnings per share is $13.00, 50 cents lower than the Big Blue's guidance.

So how is IBM making up that difference? With these Q1 cuts. IBM gains more in operating savings by completing all the cuts in Q1. Cuts made in Q2 will mean less in cost savings for the fiscal year, the Bernstein report noted.

Will IBM's "workforce rebalancing" save enough costs to deliver on IBM's guidance without hurting the company's operations? That answer remains to be seen, according to Sacconaghi. It's not a slam-dunk.

"While historically, IBM's workforce savings correlated strongly with improving margins, this has not been the case for the company over the last two years, where despite very large cost savings hitting its income statement, IBM's operating margins have contracted meaningfully," he wrote. "Accordingly, investors should be careful in assuming that IBM's incremental restructuring savings will necessarily translate into margin improvement."


Jessica Davis has spent a career covering the intersection of business and technology at titles including IDG's Infoworld, Ziff Davis Enterprise's eWeek and Channel Insider, and Penton Technology's MSPmentor. She's passionate about the practical use of business intelligence, ... View Full Bio

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User Rank: Apprentice
4/9/2016 | 1:21:08 AM
Shareholder shell game math
Can anyone explain how claiming to be hiring 25,000 people while you are laying off 14,000 people makes sense? 

The Lie of course is that they are getting rid of people with old skills and bringing in new talent.  But that's not how things work at IBM.  Most people have current skills and are enabled and required with all sorts of motivations to maintain current skills and develop new ones constantly.  

At the same time, a lot of new hires with current skills are included in those laid off.   How does this math make more sense than to instead just not hire those 25,000 people?  Wouldn't that save even more money and offset those asset sales too?  

But wait, if the 25,000 is really a Lie (and it is), and you need to cut 14,000 heads to make things add up, then you really do have to lay people off.   The real number of open jobs is closer to 8,000, which means even if those were dropped you would still need to lay off 6,000 to balance the books.  Well 6,000 at that 70K average you mention.  What if instead they laid off the people that caused the problem(those counting the revenues others generate), not people that actually work.  How many of those people would need to get laid off?   6K x 70K = $420,000,000 

That would be about 600 managers and 200 executives and 1 CEO.   801 people vs. 14,000, all the while the customers would be much happier if this is how things were done.   Would it matter to the shareholders if the dividend remained the same and the customers and employees were happier?   Are the shareholders sadistic and go for laying off as many people as humanly possible instead of removing those who actually don't produce anything or give customers service? Yeah, put that on your scale.      
User Rank: Apprentice
3/16/2016 | 2:13:38 PM
Job Cuts
After 30 years in industry it is very clear to me that organizations that effect major job cuts have been totally mismanaged for years. If the positions can be cut without affecting the performance of the organization it is certain that they weren't required in the first place unless robots are replacing the personnel being cut!
User Rank: Apprentice
3/10/2016 | 10:13:13 AM
Re: Losing a Job anytime is a really painful experience.
As a former IBMer, and current Customer of IBM Global Services, I can say that their cuts are negatively impacting their performance.  They rely too much on their name to sell services, and have been one of the worst service providers I have ever dealt with, both as an employee, and a customer.  Both HP & IBM are on the same track.  And I believe both are less than a decade away from total failure.  If I have any say, their contract will not be renewed.
User Rank: Ninja
3/10/2016 | 10:03:54 AM
Losing a Job anytime is a really painful experience.
Losing a Job anytime is a very-very painful experience for all concerned.

I am not surprised that the FB Page on IBM Layoffs is seeing so much traction today.

The fact of the matter is the Global Economy is in a Deep Slump and I don't see how Jobs will rise much higher going forwards unless Governments Globally make major Economic & Structural Changes.

Its not just about IT-Look at the Mess in the Oil&Gas Industry for pointers as well.

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