IBM is likely to be laying off workers in the months to come, but the number isn't likely to be anywhere near what's been reported.
Welcome to the world of "workforce rebalancing," an annual rite of passage for IBM. The company cuts workers in slower growth areas (or outright sells businesses such as the x86 server unit) and hires in other units such as Watson and cloud. Last year was a big one on the rebalancing front for IBM as the company cut workers and divested units. For IBM, 2014 was a challenging year that included the creation of the Watson business unit, the sale of its commodity server business to Lenovo, a partnership with Apple in the enterprise and the build out of its cloud services.
According to a Forbes report, IBM is plotting to lay off 26 percent of its workers, or more than 100,000 employees. IBM said it wouldn't comment on speculation, but said that the Forbes report was off base.
If the Forbes were on base, IBM would have given a better profit forecast on its earnings conference call, which came two days before the Forbes report.
Here's what IBM CFO Martin Schroeter said last week:
Now, in this currency environment, and with the divestitures we've completed, our total revenue as reported will not grow in 2015. I would expect less spending in workforce rebalancing, and while we always have gains, we won't replicate the $1.6 billion of gains we had in 2014, so that will be a net impact to our profit.
IBM took a $600 million charge in the fourth quarter for restructuring. Schroeter added:
You will recall last October I told you that we expected to take a charge for workforce rebalancing in the fourth quarter. SG&A includes a workforce rebalancing charge of about $580 million, nearly all of which is a year-to-year increase. Within our base expense, we're continuing to shift resources and spending to areas where we see the most opportunity including Watson, SoftLayer, Bluemix, and in support of our Apple partnership.
In other words, IBM's outlook to Wall Street---a very critical component to the company's credibility and an audience Big Blue has to keep happy to some degree---doesn't support a massive restructuring. The fourth quarter charge is likely to cover the restructuring that's on tap.
"We are not going to replicate the same level of restructuring that we had last year. It will be a lower amount," said Schroeter. "Now we will continue to remix our skills. It's part of our business."
Stifel analyst David Grossman said:
The restructuring action was known several months ago and as always is reflected in 2015 guidance. We believe other restructuring actions are planned for 2015 with both their costs and benefits reflected in guidance. It would be surprising and very much out of character for the company to be taking "incremental" actions without publicly commenting in advance.