IBM To Cut Costs With Worker Furlough

IBM confirms plans to furlough workers in its Systems and Technology Group (STG) as Big Blue seeks to tackle costs.

According to reports, IBM will furlough workers in its hardware division for a week in late August, beginning either 24 August or 31 August. During the furlough, STG employees will be paid one-third of their normal salaries; however, executives in the group will not be paid at all during the period.

Best Approach

Jay Cadmus, a spokesman for IBM’s STG unit, said these are not the first furloughs IBM has undertaken to cut costs. “In lieu of other options considered, this approach best balances the interests of employees and the competitiveness of the STG business,” Cadmus said in a statement. “This measure is one of many that we are taking as we return to a sustainable, profitable business model,” he said.

The cost-cutting measure comes as IBM fights to maintain profits amid a declining hardware environment. Revenues from IBM’s Systems and Technology segment totalled $3.8 billion (£2.5bn) for the second quarter, down 12 percent from the second quarter of 2012.

The furlough comes after IBM announced it took a $1 billion (£650m) “workforce rebalancing” charge in the second quarter as the company cut staff.

Market Pressure

IBM has been under pressure since falling short in revenue and net income in the first quarter, missing its earnings estimates for the first time in eight years. At that time, IBM decided to launch a restructuring effort that would cost the company $1 billion (£650m) in severance and other expenses related to trimming its workforce. According to the Alliance@IBM, an IBM employee organisation, more than 3,000 jobs have been eliminated in the latest round of layoffs.

“Right after IBM terminated over 3,000 employees in the US and Canada, this is the latest slap in the face and a further warning to all that the drive to “Roadmap/Roadkill 2015″ and $20 (£13.04) earnings per share continues,” Lee Conrad, national coordinator of Alliance@IBM, told eWEEK. “Billions of dollars in IBM stock buybacks but not enough money to pay workers throughout the year? IBM employees are tired of having to walk the plank for the executives’ stock options.”

“In the second quarter, we delivered strong performance in our higher-value software and mainframe businesses and again significantly increased our services backlog on growth in new business,” said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement.

Meanwhile, much of IBM’s hardware business, other than mainframes, continues to struggle. Revenues from IBM Power Systems were down 25 percent in the second quarter, compared with the 2012 period. Revenues from System x were down 11 percent. However, revenues from System z mainframe server products increased 10 percent in the quarter.

Unit Sell-off?

IBM was reportedly in talks with Lenovo earlier this year to sell off its System x business, but talks broke down. During the company’s second-quarter earnings call, Mark Loughridge, IBM senior vice president and chief financial officer, said Big Blue had been expecting a substantial second-half gain, but ran into “elongated discussions” on a larger divestiture project.

Yet, IBM continues to manoeuvre to improve its position in the hardware business. On 6 August, IBM announced it was joining forces with Google, Mellanox, Nvidia and Tyan to form the OpenPOWER Consortium – an open development alliance based on IBM’s POWER microprocessor architecture. The consortium intends to build advanced server, networking, storage and GPU-acceleration technology aimed at delivering more choice, control and flexibility to developers of next-generation, hyperscale and cloud data centres.

IBM said the move makes POWER hardware and software available to open development for the first time as well as making POWER IP licensable to others, thus expanding the ecosystem of innovators on the platform. The consortium will offer open-source POWER firmware, the software that controls basic chip functions. By doing this, IBM and the consortium can offer customisation in creating new styles of server hardware for a variety of computing workloads.

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Originally published on eWeek.