IBM Union Expects Mass Layoff to Hit Workers

The IBM (IBM) employee union Alliance@IBM is buzzing with rumors the vendor will begin a new round of layoffs today (Feb. 26) that workers fear could hit as many as 15,000 jobs worldwide.

With IBM chief financial officer (CFO) Martin Schroeter on record saying the vendor will spend up to $1 billion on “workforce rebalancing,” in 2014 to occur in Q1, and Bernstein Research analyst Toni Sacconaghi earlier this month issuing a note to investors in which he estimated impending cuts at some 13,000 jobs as reported in Barron’s, combined with reports of 1,200 workers already furloughed in Europe and India—the union’s online forum is white hot with chatter. And, much of it isn’t too flattering to IBM.

Reports at Alliance@IBM of the number of workers on the chopping block for Feb. 26 vary, but the consensus is at least 10,000 will be notified with pink slips. According to internal memos, IBM managers are said to have put the finishing touches last Saturday on lists of employees to be laid off.

“Earlier, we had heard the date of 01/24 for selection submission, 02/22 for final lists of those selected to go back to the managers, 02/25 for all managers to receive the RA package materials for each selected employee, and 02/26 for formal notification to the selected employee,” wrote one IBM employee on the forum.

Not all the anticipated layoffs will come from workers losing their jobs. Up to 7,500 jobs are expected to shift to Lenovo’s payroll owing to the Chinese manufacturer’s recent $2.3 billion purchase of IBM’s x86 server business. But the apprehension among workers at IBM locations in New York state and IBM’s Research Park Triangle in North Carolina is palpable. Employees in IBM’s struggling hardware business are thought to be particularly vulnerable to the cuts.

In late January, following the sale of IBM’s x86 unit to Lenovo, and amid the vendor’s seventh consecutive quarter of declining revenue in Q4 2013 with a 25 percent sales downturn in its hardware unit, and disclosure of the planned layoffs, the Alliance@IBM union and its worldwide counterpart UNI Global Union decided they’d had enough.

Together they issued an open letter to the company in which they argued that IBM Roadmaps focusing on EPS had cost the vendor its greatest resource—its workers. In part, the letter read:

“But things have changed in IBM since the company published its Road Maps for 2010 and 2015. Instead of focusing on the people that made the company great, IBM is now transfixed by numbers and Earnings per Share (EPS).

In 2013, IBM spent 1 billion USD on what it called “workforce rebalancing”, which means nothing else than a giant job cut. In 2014, the company is set to spend another 1 billion USD to eliminate an estimated 15,000 jobs worldwide. This comes at a time when the company continues to make hefty profits.

UNI Global Union and the UNI IBM Alliance denounce the company’s move to lay off its employees en masse. IBMers remain the company’s biggest asset, and should be in the forefront of any change. Alternatives to layoffs exist for companies looking to cut costs. Retraining programs can yield positive results for both employees and the company, and have been implemented successfully in numerous companies.”

Interestingly, it’s not only IBM’s employee unions questioning the company’s concentration on EPS. Bernstein’s Sacconaghi, as referenced in Barron’s, wrote that the vendor’s strategy appears irrelevant:

“Many investors believe IBM should be investing in its future by buying new technologies and investing in building capability, rather than rightsizing the organization. So why is IBM steadfastly driving to its roadmap? It is hard to say. Perhaps IBM genuinely believes it can invest and do what’s right for the business while simultaneously achieving its roadmap. Perhaps it is worried about disappointing Wall Street (though some believe the stock might go up if IBM reduced or eliminated its 2015 target in a constructive manner). Another possible explanation is that the roadmap/prevailing financial model is the way executives have always run the company, and changing it is uncomfortable and/or requires a different skill set and risk appetite. A final theory is that IBM’s financial incentives (senior executives’ incentive programs are based 60% on operating net income near-term and 80% of operating EPS long term) make the choice simple.”

Even in the wake of IBM’s poor Q1 2014 financial report and long streak of declining quarters, chief executive Ginni Rometty has steadfastly maintained the company is on target to achieve its target of $20 earnings per share in 2015, contending that it expects to deliver full year 2014 GAAP earnings of at least $17 per share and non-GAAP of at least $18 per share.

”As we enter 2014, we will continue to transform our business and invest aggressively in the areas that will drive growth and higher value,” Rometty said. “We remain on track toward our 2015 roadmap for operating EPS of at least $20, a step in our long-term strategy of industry leadership and continuous transformation.”