Rumors have been swirling — and IBM’s stock has been rising — on reports that the company is planning a huge round of layoffs of up to 26% of its workforce, or 118,000 people. TechCrunch has been digging and has found out from two separate sources that there will in fact be job cuts, but not anywhere close to this magnitude.
Multiple sources tell TechCrunch the 118,000 number was off by 10X, meaning the number would be closer to 11,000 or 12,000 — and the cuts wouldn’t happen all at once.
As one Silicon Valley Insider who watches IBM closely told me, “It’s hard to believe they could lay off that many people, that fast.”
Over the last several years IBM has had a string of 11 bad quarterly reports. In its latest quarterly earnings report issued just last week, revenue was down 5.6 percent from last year and net income was down more than 27 percent.
In 2014, IBM dumped its chip division in a move that cost it $1.5B. In October last year, it also announced it would take a $600M charge in Q4 related to workforce rebalancing.
IBM has taken steps to redefine itself as a company, shedding hardware like x86 servers, which it sold to Lenovo, while trying to transform the company around cloud, analytics and eCommerce.
IBM bought Softlayer in 2013 and throughout 2014, it took a company with 13 worldwide datacenters, and very quickly built 27 more for a total of 40 today, giving it comprehensive worldwide presence. It also bought a portfolio of more than 100 SaaS companies over the last several years, and launched BlueMix, a Platform as a Service offering that gives customers a way to build their own cloud services. Finally, it launched a cloud services marketplace, where developers could trade their wares. It did all this remarkably quickly.
Meanwhile, IBM has been working on other fronts like commercializing Watson, the super computer made famous by beating three Jeopardy! champions several years ago. While the Jeopardy! stunt showed the world what Watson was capable of doing, IBM commercialized it as a cloud platform to allow developers to build applications on top of Watson, while also offering Watson Analytics as a means of bringing Big Data to the business masses.
All of this together shows a company trying desperately to change and looking to shift its focus to more relevant priorities.
It’s worth noting that when HP went through big layoffs over the last decade it started with buy-out packages and early retirement incentives. When that was done, it switched to cuts. It seems highly unusual that IBM would take this massive step all at once, and not try the short-term early retirement angle before going straight for the layoff jugular.
IBM is clearly going through an important organizational shift, and finding that transformation a challenge. It would make sense to shed workers with older unneeded skills, while looking to hire people with expertise in areas that reflect their changing priorities. But that wouldn’t necessarily involve throwing the baby out with the bath water.
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Update 1/26/15
After we published this article, a source approached TechCrunch, telling us the layoff number was 10 percent of the workforce (or 43,000) and that the layoffs would be conducted in approximately 10,000 employee increments per quarter until the company righted the ship.
The source indicated that part of the reason for the layoff was the workforce was bloated (their words), but the company also needed to recalibrate to get the right mix of skills.
When asked about this new information, an IBM spokesperson told TechCrunch that the 11,000-12,000 number we heard this morning was still accurate.
