IBM mulls local job cuts

IBM SA is considering cutting jobs at its Integrated Technology Services (ITS) unit, because sales are dropping. This comes only months after it allegedly let 40 people go at another division.

Although no final decision has been taken, IBM's restructuring could lead to between 20 and 25 job cuts in a division that accounts for almost 10% of its entire local workforce.

ITS is a unit in its Global Technology Services (GTS) division, and provides a “project-based portfolio of services”. GTS provides IT infrastructure and business process services.

The restructuring comes only months after IBM reported “record pre-tax earnings, record earnings per share, record free cash flow and improved profit margins” at holding level in the year to December.

According to its latest annual report, the international company grew revenue 4%, to $99.9 billion; pre-tax profit increased 9%, to $19.7 billion, its highest ever; and its gross margin rose for the seventh consecutive year, to 46.1%.

In the report, chairman and CEO Samuel Palmisano notes that IBM is “well positioned to grow as the global economy recovers”.

Palmisano says 2010 “marks a fitting conclusion to our first century as a corporation, and a promising start to our second”.

Despite the global record-breaking performance, IBM's Europe, Middle East and Africa region reported revenue down 2.2%, to $31.87 billion, and the GTS subsidiary saw its gross margin drop 0.3%, to 34.7%.

IBM doesn't strip out SA's performance in its results, but documents in ITWeb's possession indicate dwindling sales at its local ITS unit have forced IBM to restructure the division.

In May, the company sent a “notice on proposed restructuring and possible retrenchment” to all its local staff members. The document - signed by VP of Global Technology Services for IBM sub-Saharan Africa Werner Lindemann - says the unit has “embarked on a restructuring exercise” for operational reasons.

According to an internal source, the company has told about 150 staff members within ITS to reapply for their jobs. The source alleges the proposed retrenchments mirror what happened at IBM's local Global Business Solutions division about four months ago, when about 40 staff members were let go after the unit was restructured.

IBM's letter to its staff notes the unit has seen sales decline 20% year-on-year, while revenue has dropped 12% between 2009 and 2010. It says operational expenses have increased during the same period, which led to a 36% drop in profit, “a position which the business is unable to sustain”.

The notice says IBM's “go to market strategy has to continuously evolve” as it focuses on growth and on responding to changing market requirements. It says the company has to realign its skills set.

IBM will restructure its sales team and sales managers, and sales people “will be able to apply for the proposed restructured roles”. In addition, business operations will be restructured to support the new sales teams, says the notice.

The notice says management has considered other options that may be feasible, including deploying resources outside of SA, across other lines of business, and evaluating other ways to trim costs.

It says the possible retrenchments are because of declining sales and revenue, as well as “poor current and projected billable and chargeable utilisation”, and realignment of the sales model.

“We wish to emphasise that no final decision has as yet been taken, nor will it be taken until after consultation with you,” says the notice. IBM adds: “It is difficult to determine with certainty at this juncture precisely how the changes in operating model and right-sizing activities will impact ITS as a whole, but it is anticipated that this action would affect 20 to 25 people.”

IBM SA employs 1 724 people and its letter indicates it has retrenched less than 50 people within the last 12 months. Globally, IBM has more than 400 000 staff members, a number that increased 6.8% between the end of 2009 and 2010.

The company expects to wrap up the consultative process, which started two weeks ago, by 20 June, and if there are any retrenchments, it will issue 30-day notice letters on 21 June.

ITWeb sent IBM SA a comprehensive list of questions on the issue via its public relations agency. However, the company would only comment that: “IBM is constantly managing resources as client demands evolve.”