Marking a second round of layoffs this month, IBM announced Wednesday that it will cut 1,566 jobs from its global workforce, primarily in its U.S. strategic outsourcing services business.
Big Blue, which employs 355,000 workers worldwide, said it expects to cut a total of 3,016 jobs by the end of the second quarter. That number includes 1,300 positions eliminated earlier this month.
The move comes at a time when the company is squeezed between operating costs and revenue for its strategic outsourcing business in the U.S. During the company's first-quarter earnings conference call in April, Chief Financial Officer Mark Loughridge said the company would "rebalance" its resources.
IBM's services business employs 128,000 people in the U.S, with the bulk of those working in strategic outsourcing, said John Bukovinsky, an IBM spokesman.
"Strategic outsourcing is quite dynamic...contracts are renegotiated on a constant basis," Bukovinsky said.
The company's strategic outsourcing business takes care of such tasks as taking over a customer's help desk, or data management center, and operating it for the customer. The larger contracts typically span 7 to 10 years and cost hundreds of millions of dollars. These larger contracts often involve IBM hiring employees who previously worked for the company on its software, systems or other assets.
But over the past five years, customers have been moving toward shorter contracts of two to three years, involving specific projects, Bukovinsky said.
"They're outsourcing various pieces, so the size and length of the contract is smaller," he said, adding such contracts usually do not require inheriting customers' assets and employees. "There's less upfront costs for us and they tend to be higher (profit) margin engagements."
Customers, as a result, may find it easier to turn to competitors for further outsourcing needs, whereas longer contracts that call for assuming customers' assets and employees may make it more difficult to jump ship.