If IBM cuts, IBM Canada might feel the blade

IBM Corp. reportedly is poised to cut 9,000 staff members come mid-year 2002 and the Canadian subsidiary probably will not be spared job losses, said one industry observer.

On May 10 reports said IBM, the Armonk, N.Y.-based technology equipment maker, plans to cut between 2.5 per cent and three per cent of its workforce, representing between 7,500 and 9,540 employees.

Mike Quinn, spokesman for IBM Canada, said, “We don’t comment on rumour and speculation.”

Kevin Lo, technology analyst with Lightyear Capital Inc., an investment firm in Calgary, said IBM Canada Ltd. in Toronto would likely lose staff members if IBM did swing the axe.

The job reductions “will extend across the border from the U.S. and outside of it,” Lo said. “The major part will be in the U.S.…where a lot of the activity is.”

He added, Big Blue might be trying to bring costs in line with projected business.

“They’re not looking at this quarter, they’re looking ahead to the rest of 2002 and 2003,” Lo said. “IBM is pretty broad-based – hardware in the consumer space, back-end servers and a lot of their money comes from services – and I think they’re seeing, something that’s a huge red flag for me, that corporate spending is not going to come up.

“They could wait until the customers catch up with demand, or they can let these people go now and hire them back a year later when [IBM needs] them.”

Dan McLean, an analyst with IDC Canada in Toronto, said he was surprised to hear that IBM might consider workforce reductions.

“There certainly has been no indication of any need to trim down staff,” he said.

McLean said the company’s services division is “pretty healthy,” so he expects no job cuts there.

“When tough times come to companies, they look to services for cost cutting,” McLean said. Enterprises turn to firms like IBM for IT outsourcing help and application management. IBM Canada has the bulk of such business in this country.

However, on May 9, rumours circulated the Web that suggested IBM would in fact chop employees from its global service subsidiary. McLean said, “that would be a major surprise” if it came to pass.

IBM lost ground year-over-year in Q1 2002, when the earnings came in at US$1.19 billion versus US$1.75 billion in Q1 2001.

According to an April statement, Samuel Palmisano, IBM’s president and CEO, said the lower earnings were “largely the result of the continued weak global business environment… Customers in every part of the world deferred technology purchases in the first quarter, and these widespread deferrals hurt us across every one of our major business units.”

Lo said IBM’s expected move is a good sign for investors, with one major caveat.

“That’s tempered by the entire industry, and all of the industries IBM participates in, including services, server sales and PCs. You’ve got to think that they’re looking ahead and saying, ‘The demand isn’t there.’ That’s a negative.”

IBM’s enterprise customers need not worry about diminished service, however.

“Business is so hard to find right now,” Lo said. “Companies don’t want to lose their existing customers. And the cost of regaining customers is 10 times more than keeping them. IBM may cut some people, but at the same time [other staff members will] be there to take their place.”