IBM In Search of More Global Face Time
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IBM's plan to cut 10,000 to 13,000 jobs will help the company improve its services offerings, an analyst said.
Judith Hurwitz, president of research firm Hurwitz & Associates, said the move was a realistic attempt by IBM to get leaner and meaner while getting its services personnel closer to customers.
She said the move is a predictable reaction to the Armonk, N.Y., company's first-quarter earnings release, during which IBM said it missed guidance by five cents per share, blaming a soft global economy.
"I think that they have been having trouble in Europe," Hurwitz said in an interview. "Clearly that's a reaction to that. I think they are making more internal changes with how they go to market."
Although Big Blue pulled in a profit of $1.4 billion for the quarter, revenues flattened out by about 3 percent to $22.9 billion, and sales across some major groups looked soft, including its global services unit. Global services takes in more than half of IBM's revenues.
On a Thursday conference call, Mark Loughridge, senior vice president and CFO at IBM, made a direct correlation between the job cuts and the company's first-quarter earnings.
"When we last spoke on April 14, I said we have been looking at our structure and operating model to ensure that we serve our clients in the most efficient and effective way possible, and that could result in sizable restructuring activities. Yesterday's announcement lays out our plans -- to improve IBM's operating efficiencies and strengthen our client-facing operations."
IBM will realign operations and organizational structure in Europe to improve execution. Loughridge promised to install a more effective management structure in Europe by granting decision-making authority to lower levels in the organization.
The idea is to get IBM managers to work more closely with customers, an approach Loughridge described as "lowering the center of gravity." To that end, IBM is putting pricing decisions, marketing programs and sales activities in the hands of field leaders.
The cuts, which will be implemented by July 4, come with a pre-tax charge between $1.3 and $1.7 billion in the second quarter.
But personnel isn't the only place IBM is looking to make changes, Loughridge assured investors. The company is also looking to improve its global service operations by creating Integrated Delivery Centers, consolidating its service delivery workload into fewer centers around the world.
Again, more management responsibilities will be placed in the hands of customer-facing officials.
This will help the company boost its Business Performance Transformation Services strategy, Loughridge said. BPTS is a technology and business alignment strategy IBM embarked on a few years ago when it acquired PricewaterhouseCoopers Consulting for $3.5 billion.
IBM boosted its BPTS play by acquiring Equitant earlier this year.
"This is coming out of their business services in global services -- the PwC [PricewaterhouseCoopers] organization they bought," Hurwitz said. "Clearly, they want to be not just positioned as a provider of infrastructure software but also for business consulting."
The analyst said IBM will be fine.
"This is a real transitional time for IBM in general," Hurwitz said. "I fundamentally believe that IBM is a solid company."
Investors applauded the news, too. IBM's stock closed Wednesday at $77.08 per share, up 61 cents.