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IBM plans to cut up to 13,000 jobs

A worker installs monitors at the IBM booth at the Cebit fair in Hanover, northern Germany, in this Feb. 21, 2000 file photo. PHOTO: AFP

US computer giant IBM announced Wednesday it plans to shed up to 13,000 employees worldwide as part of a restructuring focused on its struggling European operations.

The Big Blue having shocked Wall Street with disappointing earnings figures last month, signalled that the job cuts were part of efforts to reinvent itself after it ditched its personal computer unit.

In a statement issued just after the New York stock exchange closed, IBM said it foresaw reducing its 329,000-strong workforce through "voluntary and involuntary" cuts of 10,000 to 13,000 employees worldwide.

The restructuring will incur a pre-tax charge of US$1.3 billion to US$1.7 billion in the second quarter of the fiscal year, before the plan starts to pay off financially in the second half of this year, IBM said.

"The majority of the overall workforce reductions are planned for Europe, and the company has initiated discussions of these changes with local consultation bodies," it said.

The firm signalled that it will dismantle its management structure in "slower-growth" Europe by deploying more consultants in the field to get closer to businesses in need of technology advice.

It said the success of the revamp depends "on reducing bureaucracy and infrastructure in lower-growth countries and creating teams that can work across country borders."

"This eliminates the need for a traditional pan-European management layer to coordinate activity. As a result, IBM will create a number of smaller, more flexible local operating units in Europe to increase direct client contact."

Europe has been a particular sore point for the Armonk, New York-based company. Although IBM did not spell out where in Europe the axe would fall, local press reports have said the bulk is expected in Britain and Germany.

IBM is grappling to reposition its core business away from PCs. Its share price slumped after it reported first-quarter net income of US$1.4 billion or US$0.85 a share last month, well down on analysts' forecasts for earnings of US$0.9 a share.

On Sunday, IBM wrapped up a US$1.75 billion deal to sell its PC division to Chinese computer maker Lenovo Group Ltd (聯想), in a startling sign of both IBM's transformation and of China's emergence onto the global stage.

But Lenovo said yesterday it plans to buy back 435.7 million shares it issued to IBM when it purchased the US company's PC division.

The announcement means that IBM will receive more cash, and fewer shares under the purchase deal than originally agreed.

Under the share buyback, which is subject to approval by Lenovo's shareholders, IBM would receive an additional HK$1.19 billion (US$152.2 million) in cash.

In a legal notice published yesterday, Lenovo said it would pay for the shares using US$350 million it expects to receive from a group of private investors in return for preferred shares that can be converted to common shares and warrants for shares. That deal must also be approved by shareholders.

IBM owns 18.9 percent of Lenovo and the share sale, if approved, would reduce its stake by 4.7 percent. IBM's stake could fall further -- to about 13 percent -- if the private investors convert their preferred shares and warrants into common stock, Lenovo said.
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