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Is IBM Doomed?

Tim Beyers
March 26, 2009

So now tech is the enemy? Apparently. The Wall Street Journal is reporting that IBM (NYSE: IBM  ) plans to cut 5,000 U.S. jobs and ship "many" of them to India. How many is unclear, and Big Blue isn't saying.

Didn't you just say ...
Color me confused. In January, IBM reported a 17% per-share fourth-quarter earnings boost and told analysts to expect $9.20 a share in 2009 net income, well ahead of the Street's $8.75 per share forecast. Big Blue was the Big Blue Dog. No longer.

Or maybe it still is. Amid the speculation, I sense two possibilities. Either IBM desperately needs to cut costs and is turning overseas for relief (a problem), or Big Blue is preparing to buy Sun Microsystems (Nasdaq: JAVA  ) by giving itself a little fiscal breathing room (an opportunity).

It's a problem!
Lower tech spending argues in favor of the problem theory. How low will it go? According to Duke University's quarterly survey of 543 chief financial officers serving at U.S. companies, tech spending will dip 6% this year.

No need to tell Oracle (Nasdaq: ORCL  ) that. IBM's database software peer tacitly copped to lower tech spending -- and, thereby, lower growth -- when it agreed to pay a dividend for the first time in its history.

A weakening economy argues for a lower cost structure. Outsourcing to emerging countries lowers costs. And not just to India; IBM has services operations in several emerging nations, including Brazil and The Philippines.

But it's India that's home to professional services giants Infosys (Nasdaq: INFY  ) and Wipro (NYSE: WIT  ) . Moreover, rumors persist that IBM would bid not only for Sun, but also for ailing Satyam Computer Services (NYSE: SAY  ) , further boosting its presence on the subcontinent.

It's a Big Blue Presence. In 2006, IBM committed to