IBM PC group to lay off up to 10% of workforce

In an effort to finally turn a profit, IBM's Personal Systems Group is shaving 5 to 10 percent of its 10,000-person workforce, according to a memo sent to PSG employees Wednesday by Executive Vice President Dave Thomas.

The company is also seriously considering pulling out of many retail outlets next year in favor of a major new Web sales push, sources said. IBM's consumer business continues to lose money for the company.

"There will be increased online sales, especially to consumers," said one source.

Sources added that the currently separate consumer manufacturing and marketing efforts will be merged into the rest of PSG.

"Right now [the consumer group] has standalone manufacturing and marketing. That's a luxury you can't afford anymore," said a source.

Profitability proves elusive

According to Trink Guarino, a spokeswoman for PSG, most of the cuts -- a mix of reassignments and layoffs -- will come from marketing. That's because the division is merging its separate product marketing functions into one organization responsible for cross-brand marketing.

"We are trying to take costs out of the business [to] improve profitability," she said.

Profitability in PCs has long eluded IBM, which has lost over $1.1 billion selling them since early 1998. Despite persistent rumors that IBM is exiting the business, executives maintain that PCs are strategic to its business, especially as IBM offers a complete e-business solution.

The impact of the cuts, if any, on IBM's bottom line will not be known until the company reports fourth-quarter earnings early next year.

The Armonk, N.Y., company will report third-quarter earnings on October 20.