IBM's Growth Secret: Layoffs?

We've known for months that Silicon Valley isn't safe. But Armonk, N.Y., home of International Business Machines (NYSE: IBM  ) -- that area has to be safe, right?

Wrong. On Sunday, an IBM spokesperson confirmed -- in an email to me -- that Big Blue laid off employees last week, joining Nokia (NYSE: NOK  ) , Intel (Nasdaq: INTC  ) , and Electronic Arts (Nasdaq: ERTS  ) as recent cutters. Quoting from the statement:

On Jan 21, we notified some employees to inform them their jobs were being eliminated. This is a North American action however we are not communicating locations affected or the number of jobs. IBM continuously evaluates its mix of skills and resources, throughout the year, and makes changes as needed.

News.com's Jennifer Guevin provided context to this circulating story in a weekend blog post. Citing various sources, she confirmed that at least 2,800 employees have received pink slips.

ZDNet Asia, meanwhile, is reporting that Big Blue could cut 2,600 jobs in the Asia-Pacific region. IBM didn't speak to that in its email to me but the move seems plausible; Big Blue recently turned away from Asia and toward East Lansing, Mich., and Dubuque, Iowa, for new service centers.

Yet if IBM is cutting staff, overseas peers may have it worse. Wipro (NYSE: WIT  ) offered a sober assessment for 2009 in reporting third-quarter earnings last week. The Wall Street Journal reports that Tata Consultancy is losing projects. And Satyam Computer Services' (NYSE: SAY  ) cooked books are poisoning investors.

Of India's top outsourcers, only Infosys (Nasdaq: INFY  ) has impressed investors as much as IBM has. And for good reason; both reported stellar results in recent weeks. Infosys topped the Street's earnings estimates by $0.03 per share, while IBM boosted its bottom line by 17%.

Performance like that may help to explain why -- layoffs or no layoffs -- very few in our 125,000-strong Motley Fool CAPS community are worried about IBM:

Metric

IBM

CAPS stars (5 max)

****

Total ratings

3,168

Percent Bulls

89.3%

Percent Bears

10.7%

Data current as of Jan. 26, 2009.

"This ain't your daddy's Big Blue. IBM has cut the dead weight and now they're lean and mean. This is how a bloated company with an outdated business model can turn itself around. GM could stand to learn a thing or two from them," wrote CAPS All-Star BSHumphreyII in December.

Agreed, but that's my take. I'm more interested to know what you think. Would you buy IBM at these prices? Let us know by signing up for CAPS today. It's 100% free to participate.

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Electronic Arts is a Stock Advisor selection. Intel and Nokia are Inside Value picks. The Fool owns shares and covered calls of Intel. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers owned shares of IBM and Nokia at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is enjoying two lumps of sugar with its morning coffee.


Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2009, at 10:57 PM, gonzoGone wrote:

    You're either really Foolish (or blind) or you're just not paying attention if you really think IBM cut some dead weight in these layoffs. Large companies like IBM use a dull machete, not a scalpel when laying off thousands. Some of IBM's best and brightest were lost in these layoffs. I should know. I'm an average IBMer left to take up the slack for some of the bright stars we've lost. Or maybe I should be more realistic and say I'm here to hold down the fort until more jobs go to India & China. 2002 IBM had 152K in US, 316K worldwide, 7K in India. Today, it's about 120K US, 398K worldwide, 94K in India. So, by 'rebalancing' Loughridge meant sending jobs out of the country, not cutting the deadwood.

  • Report this Comment On January 29, 2009, at 1:26 AM, jenerec wrote:

    I should know. IBM has moved my various positions 3 times in the last 5 years to India and now Singapore. Only this time I got the axe. Hard to compete when your replacement makes around $10K/yr

  • Report this Comment On January 31, 2009, at 7:24 PM, Speakup54 wrote:

    If you think IBM is eliminating dead weight then you need to take a good hard look at who they have been letting go. This last week they let some of their top developers, designers, project managers, program managers, technical staff go. This is what has been happening for over 2 years.

    Since they put the push on shifting work to India they have been asking us to 'mentor' our 'peers' in India. The majority of these 'peers' have much lower skills sets then we do, and have very strict guidelines on what they will or will not do. In the US an IBMer will go outside of the box for a customer to provide excellent customer service and products. India will never go outside the box, it isn't part of their job and they'll tel you that. As an employee who has been rated year after year at the highest level IBM has, I was given (not asked, just given) an employee in India to mentor because he was failing to perform. I have found myself having to do his job because every customer he has been assigned to has asked for him to be removed. So now I am the one driving the work for him while he sits there lost in never-never land; this while still having to maintain the high level of service to my own customer.

    So, you may think its deadwood that is going but it is not. No one in the US ranks is safe. AND, check the numbers for the past 2 weeks in layoff, its over 4,000 so far. IBM won't state the numbers but you add up site by site/division by division and its all there.

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