The economic recovery from the pandemic is looking shaky as cases of COVID-19 surge across the country. The Labor Department reported 778,000 initial claims for state unemployment benefits for the week ended Nov. 21, marking the second consecutive weekly increase.
Shares of International Business Machines (NYSE:IBM) sank along with the Dow on Wednesday following news that the company reportedly plans to cut thousands of jobs in Europe. Shares of salesforce.com (NYSE:CRM) also headed lower on reports that the software company is talking to Slack (NYSE:WORK) about a potential acquisition.
IBM plans job cuts before spin-off
Bloomberg reported on Wednesday that tech giant IBM plans to slash jobs in Europe by around 10,000. The goal of the job cuts is reportedly to lower costs at the managed infrastructure services business, which IBM plans to spin off into a separate company by the end of 2021.
The job cuts will impact about 20% of IBM's staff in Europe. Cuts will be concentrated in the U.K. and Germany, although jobs will also be eliminated in Poland, Slovakia, Italy, and Belgium. Bloomberg's sources said the job cuts should be completed in the first half of 2021.
IBM's services businesses are labor-intensive and carry lower profit margins than software. The company has been pivoting to cloud computing, artificial intelligence, and other high-value growth areas for years, and the spin-off will further concentrate IBM's resources on its best growth opportunities.
The spin-off is the second big bet IBM has made on hybrid cloud computing, which mixes on-premises hardware and cloud data centers. The first was the $34 billion acquisition of software company Red Hat, which closed in 2019. Red Hat is known for Red Hat Enterprise Linux, a leading server operating system, as well as OpenShift, a container platform that can be deployed on on-premises hardware as well as on the major public cloud platforms.
Shares of IBM were down about 0.6% by early Wednesday afternoon. The stock is down nearly 8% in 2020.
Salesforce could buy Slack
CNBC, citing Dow Jones, reported on Wednesday that customer relationship management software provider Salesforce was recently in talks to acquire collaboration software provider Slack . Salesforce has made some large acquisitions over the past few years, including MuleSoft and Tableau. An acquisition of Slack would likely be the biggest yet for the freshly minted Dow component.
Shares of Salesforce were down about 4.5% by early Wednesday afternoon in reaction to the news, while shares of Slack had soared 25%. Neither company has yet commented on whether talks are taking place.
Slack competes with Microsoft Teams, which is bundled with some of the tech giant's Office 365 subscription plans. Salesforce competes with Microsoft in the CRM market, going up against Microsoft Dynamics. If Salesforce does buy Slack, it could leverage its existing customer base to boost Slack's growth. The company could even bundle Slack with some of its existing subscription offerings, pulling the same trick Microsoft uses to push Teams.
Salesforce stock has surged 55% this year, although it's down about 10% from its recent peak.