IBM to cut 13,000 jobs, take tax charge

Computer maker says it will incur a charge between $1.3 and $1.7 Billion; cuts mainly in Europe.

May 4, 2005: 6:19 PM EDT

SAN FRANCISCO (Reuters) - IBM said Wednesday it would cut up to 13,000 jobs, principally in Europe, as part of a global cost-cutting plan that will result in a pretax charge of $1.3 billion to $1.7 billion.

IBM, the world's largest computer company, said in a statement it was restructuring its operations to better focus on high-growth markets and to refocus its technical services operations into new areas of business consulting and services.

The news, which followed the close of regular trading on the New York Stock Exchange, sent IBM (Research) shares edged higher in after hours trading from their regular session closing price of $77.08.

The company said it plans to cut between 10,000 and 13,000 jobs starting in the second quarter, representing roughly 3 percent to 4 percent of the workforce at the end of 2004.

International Business Machines Corp., of Armonk, New York, employed 329,000 staff worldwide in December, the last time the company disclosed its total work-force figures. About 100,000 of those jobs are located in its European region.

Last month, IBM warned that job cuts were coming following a bombshell earnings shortfall which it blamed on disappointing profits and sales in key European markets and Japan, as well as its inability to close deals near the end of the quarter.

The job cuts were a sign that IBM is trying to solve its own troubles, not a symptom of a wider slowdown in the tech sector, said Mark Herskovitz, manager of Dreyfus' Premier Technology Growth fund, which manages $2 billion in assets.

Voluntary cuts
IBM spokesman John Bukovinsky said most of the job cuts in Europe would be voluntary and that talks had begun with workers' councils and other organizations on the timing of these actions.

"In Europe, we expect to reach most of the objectives through voluntary programs," Bukovinsky told Reuters.

But Herskovitz questioned the company's ability to hit the goal. "I don't know how they are going to get 10,000 people to quit," he said.

The spokesman said many of the cuts would begin in the third quarter. He put no time frame on how long it would take for the restructuring effort to be completed.

The company said it plans to realign its operations and organizational structure in Europe.

IBM said it seeks to reduce bureaucracy and organizational presence in lower-growth countries and to create more cross-border teams to deliver product and services. This will allow the company to eliminate what it described as a traditional layer of pan-European management.

"As a result, IBM will create a number of smaller, more flexible local operating units in Europe to increase direct client contact," the company said in the statement.

IBM's Chief Financial Officer Mark Loughridge plans to hold a conference call with investors at 8 a.m. EDT (1200 GMT) on Thursday to discuss the plan.

Shares of IBM (Research) climbed one percent in after-hours trading after closing at 77.08 Wednesday on the New York stock Exchange.