International Business Machines Corp is firing about 1,000 US workers in its semiconductor business amid declining sales.
The cuts represent 4.7 percent of the 21,500 workers in IBM's microelectronics group, which makes custom chips for mobile phones, networking equipment and game devices, and will affect workers in six states. Sales at other divisions are growing, and IBM expects to end the year with about 320,000 employees, up from 316,000 at the start of this year.
IBM, the largest maker of custom semiconductors, said chip sales to network-equipment customers such as Cisco Systems Inc and Alcatel SA have declined. Sales at IBM's semiconductor business rose 29 percent in the second quarter and declined 30 percent in the third. The company has said the second half of this year will be the bottom of the sales cycle.
"We're bullish long term but this has turned out to be deeper and longer-lived than anyone expected," IBM spokesman Bill O'Leary said.
Shares of Armonk, New York-based IBM, the largest seller of computer services and hardware, fell US$2.05 to US$112.15. They have gained 32 percent this year.
"This is small in the scheme of things," said SoundView Technology Group analyst Gary Helmig. "IBM has held up very well."
IBM has been running plants at about 80 percent of capacity, and some job cuts were anticipated by analysts and built into their forecasts, Helmig said. He has a "buy" rating on IBM stock and holds shares from a decade ago when he was an employee.
IBM's Technology Group, which oversees the company's chip business as well as computer disk drives, had US$1.65 billion in third-quarter sales, representing 8.1 percent of IBM's sales.
About three-fourths of the group's output goes to other firms. The remaining chips and drives are used in IBM products.
In July, IBM cut 1,000 jobs in its services group while saying that total headcount would grow this year as it "rebalances" skills. IBM's overall headcount has risen in each of the last five years. It stood at 241,000 at the end of 1996.
In 1993, Chairman and Chief Executive Officer Louis Gerstner's first year at the company, IBM cut about 45,000 jobs, or 15 percent of its workforce in an effort to return to profitability. IBM, which lost US$8.1 billion in 1993, has been profitable since 1994, with increased earnings each year.
Most of the jobs involved in the cuts announced yesterday are related to the design and development of semiconductors, O'Leary said, adding that workers in Vermont, New York, North Carolina, Minnesota, California and Colorado will be fired.
IBM says it expects to fare better than most chipmakers because specialized semiconductors for advanced products are the least likely to be shelved by customers. IBM makes the chip that runs Nintendo Co's new GameCube device.
Most chip industry analysts are predicting a turnaround in the networking chip business in the second half of next year.
"This is still a big growth opportunity for us," O'Leary said.
The firings won't delay construction of IBM's latest chipmaking facility, in East Fishkill, New York, O'Leary said.
That plant will begin pilot production in August and full production in the first quarter of 2003.
Professional and management jobs are among those being cut, O'Leary said. IBM earlier had reduced overtime and the use of contract workers, he said.
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