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IBM cuts jobs, takes USD2 billion charge
Wednesday, June 05 2002
by Sheila McDonald


IBM is to take a massive charge of between USD2 billion and USD2.5 billion as it
cuts jobs and gets out of the hard disk drive business.

According to media reports around 1,500 of the job cuts have already been made in
IBM's microelectronics business, a unit manufactures and distributes memory,
storage networking and PowerPC semiconductors. The company said it will give full
details of workforce reductions when its second-quarter results are announced in
July. 





Speaking to analysts on Tuesday, the company's chief financial officer John Joyce
said IBM was looking to realign its microelectronics division, putting a greater
focus on technology design and advanced foundry services. He also confirmed that
the company is taking "workforce and related actions" in other parts of its
business, but details will not be available until July. 





IBM is one of Ireland's largest IT employers with 4,200 workers. The company said
most staff affected by the cuts have already been notified, and the cuts are due
to be complete by the end of the second quarter. A spokesperson for IBM in
Ireland said no cuts were anticipated here, and reports say most of the 1,500
layoffs are being made in Vermont in the US.



"These efficiencies are intended to go beyond addressing the current weakness
in the market," Joyce told analysts. "Our objectives are lower product costs
and better expense ratios than our competitors, over the long run." 



IBM will take most of the massive pre-tax charge during the second quarter;
this includes costs for job cuts as well as costs related to its exit from the
hard disk drive business. The company announced a major initiative on Monday to
transfer its hard disk business to Hitachi, including 18,000 IBM employees and
IBM intellectual property connected to this business. Hitachi is to pay USD2.05
billion to IBM and will wholly own the hard disk business within three years.



IBM currently employees 318,000 people globally but is eager to pare down that
number as it faces down a prolonged, unprecedented downturn in corporate IT
spending. The company's new chief executive officer Sam Palmisano has indicated
repeatedly this year that cuts would be needed, and Reuters continues to quote
sources suggesting that total cuts, when complete, could amount to more than
9,500 people.



Also speaking to analysts on Tuesday, the company's Senior Vice President and
Group Executive John E. Kelly III was at pains to stress that IBM would not exit
the semiconductor business altogether.



"We are serious about our chip business and we're in it to stay," Kelly said.
"As Sam Palmisano indicated in his comments to you in New York last month, 'We
love this business.' And, going forward, we'll continue to make the investments
in research, development and manufacturing capacity to succeed."



"At the same time, we recognise the semiconductor industry is going to emerge
from this unprecedented downturn looking very different than ever before," he
added. 



The company's re-organised microelectronics division will increase its focus on
areas like custom-chip design and manufacturing and will also add new technology
design services.