IBM Furloughs U.S. Hardware Employees to Reduce Costs

Photographer: Scott Eells/Bloomberg

International Business Machines Corp., the world’s biggest computer-services company, is trimming expenses to preserve profit margins as hardware revenue continues to decline. Close

International Business Machines Corp., the world’s biggest computer-services company,... Read More

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Photographer: Scott Eells/Bloomberg

International Business Machines Corp., the world’s biggest computer-services company, is trimming expenses to preserve profit margins as hardware revenue continues to decline.

International Business Machines Corp. (IBM) said it’s requiring the majority of U.S. employees in its hardware unit to take a week off with reduced pay, cutting costs as demand slows for products such as servers.

U.S. hardware workers, including those involved in development and procurement, will take a furlough week with one-third pay starting either Aug. 24 or 31, said Jay Cadmus, a spokesman for the Systems and Technology Group. Executives in the division will take no pay during the week.

The world’s biggest computer-services company is trimming expenses to preserve profit margins as hardware revenue continues to decline. Sales in the unit, which also includes storage devices and microelectronics, slid 12 percent in the second quarter from a year earlier to $3.76 billion.

“We looked at a variety of things that we could do, and in lieu of other options considered this the best approach in the balance of the organization,” Cadmus said in a phone call. The company has done furloughs before, he said.

IBM slipped 2.3 percent to $190.99 at the close in New York, the biggest one-day drop in more than a month. The decline wiped out the stock’s gains for the year.

Credit Suisse Group AG downgraded the company today to the equivalent of a sell rating. IBM has fewer ways to manage its portfolio to reach its earnings goals and has seen “gradual decline in the company’s competitive position across its industries,” Kulbinder Garcha, a Credit Suisse analyst, said today in a research note.

Billion-Dollar Charge

In the second quarter, Armonk, New York-based IBM spent $1 billion to restructure its workforce, cutting more than 3,300 employees in the U.S. and Canada, according to Alliance@IBM, an employee group. IBM doesn’t disclose the number of employees by country or by division. The company’s total workforce was 434,246 as of Dec. 31. Hardware accounted for 16 percent of IBM’s $104.5 billion in 2012 revenue.

“IBM continues to punish workers with job cuts, furloughs and pay cuts while the company spends billions to buy back stock and inflate the price,” said Lee Conrad, coordinator of Alliance@IBM. “There appears to be no sacrifice at the top.”

IBM spent $3.6 billion on share repurchases last quarter. The company raised its forecast last month for 2013 profits to at least $16.90 a share, up from $16.70, excluding the $1 billion restructuring charge.

Chief Executive Officer Ginni Rometty shook up the management of the hardware division in April, replacing Rod Adkins with Tom Rosamilia, who had been overseeing corporate strategy.

IBM was in talks earlier this year to sell parts of its server division to Lenovo Group Ltd. (992), people familiar with the discussions have said. The negotiations broke down in early May due to disagreements over price, one person said.

IBM is also taking steps to use its semiconductor technology to improve the hardware unit’s results. Today, the company is scheduled to announce a partnership that will allow Google Inc., Nvidia Corp. (NVDA) and other technology companies to license its microprocessor designs. The Wall Street Journal reported the semiconductor plan yesterday.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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