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IBM fires 1,500 chip employees

International Business Machines Corp fired 1,500 US semiconductor workers and created a unit to sell more computer-system designs to try to restore profit in its group that makes chips and other parts.

The world's largest computer maker said it will have pretax expenses of US$2 billion to US$2.5 billion, primarily in the current quarter, reflecting the job cuts and charges to exit the hard-disk drive business, which was announced yesterday.

Chief Executive Sam Palmisano is trimming the workforce and exiting lower-margin businesses after two straight quarters in which IBM sales trailed analysts' estimates by US$1 billion.

The company has cut more than 5,300 jobs in recent weeks, according to the Communications Workers of America. IBM said it will sell its hard-disk drive business to Hitachi Ltd for US$2.05 billion, moving 18,000 workers off the IBM payroll.

"They've been doing what they can to offset the cost of these [chip] fabrication plants," said Bob Sutherland, an analyst with Technology Business Research Inc. "They've been holding out as long as they can."

The job cuts represent 7.5 percent of the chipmaking division's 20,000 employees and mostly involve professional workers at sites in Vermont and New York state, IBM spokesman Bill O'Leary said.

The design group will plan computer circuit boards, subassemblies and systems, and IBM hopes to attract clients ranging from consumer electronics to aerospace companies.

IBM's Technology Group, which makes hard-disk drives and semiconductors, lost US$276 million in the first quarter. Chip sales last year were about US$5 billion, analysts have estimated. IBM employed almost 320,000 workers globally as of Dec. 31. The company will eliminate as many as 9,600 jobs this quarter, a person familiar with the plan said last month.

Assuming overall job reductions of 10,000, IBM could save about US$240 million in 2002, Thomas Weisel Partners analyst David Grossman said in a note to clients before IBM's announcement today. He rates IBM "buy" and doesn't own the shares.

Cutting jobs and revamping the Technology Group will "substantially lower IBM's annual operating expenses," Chief Financial Officer John Joyce said in a statement.

The changes will let IBM's chip unit return to "healthy" profit growth "very quickly," John Kelly, head of IBM's Technology Group, said on a conference call.

IBM has been cutting jobs outside of the chip unit, and most cuts will be completed by the end of June, Joyce said, without providing details.

"We will begin to see the benefits from these actions in the second half," Joyce said. Exiting the hard-disk drive business will be accounted for as discontinued operations, he said.

The company cut about 1,000 US semiconductor jobs in November as sales to telecommunications companies and network-equipment makers dropped.
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