Despite cuts they say cost $1 billion, IBM reports benefit from “workforce rebalancing” that will manifest over the next four quarters
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Cuts to global workforce cost IBM $1 billion
IBM Corp. said its recent global job cuts cost $1 billion, a factor that made a dent in its earnings report for the second quarter.
While thousands of IBMers worldwide cope with job loss, including 697 of them at the two plants in Dutchess County, the corporation continues to see a benefit from this “workforce rebalancing” that will manifest over the next four quarters, its chief financial officer said.
There was also news Wednesday that IBM is considering selling more units beyond the one already known to be in the works, that being its System x line of small servers based on Intel’s x86 architecture. No details were given.
Chief Financial Officer Mark Loughridge said the pending divestiture won’t necessarily happen in the second half of the year, as had been expected, but remains under discussion.
“We’re not going to underprice or rush a divestiture simply to close in 2013,” he told brokerage analysts during a teleconference.
Delay won’t derail the plan to earn $20 per share by 2015, he said.
“We’re certainly working on other divestiture contents,” he added.
What may that be? He offered no clues, and IBM doesn’t show its cards until it’s ready to lay them down. But about a year ago, British semiconductor analyst Malcolm Penn’s Future Horizons Ltd. said it assumed that IBM’s chip division would be bought eventually by GlobalFoundries, which is a partner with IBM both at its East Fishkill site and at the huge new plant GlobalFoundries built in Saratoga County.
In an unusually complicated second-quarter earnings report Wednesday, IBM said it earned $3.2 billion, down 17 percent from a year earlier, on revenue of $24.9 billion, which was down 3 percent. Its earnings per share of stock came in at $2.91, down 13 percent. Those numbers use generally accepted accounting principles, or GAAP.
IBM also reports non-GAAP numbers, called operating results. This time, because of the $1 billion workforce action, it did that two ways.
If you exclude the $1 billion on the grounds that it’s a one-time effect, IBM showed profit of $4.3 billion, up 3 percent. The earnings per share go to $3.91, a gain of 8 percent.
But if you include the workforce cuts charge, the operating result is a profit of $3.2 billion, down 12 percent, and the earnings per share go to $3.22, down 8 percent.
The reporting complexity prompted one analyst, Toni Sacconaghi of Sanford Bernstein, to say it was a “little nebulous” and ask for clarification about whether IBM was “changing the definition.”
Loughridge said the number to focus on for forecasting was $16.90 per share for full-year 2013 earnings, based on the operating reporting and excluding the workforce charge. That figure is up by 20 cents, he added.
Investors liked that. In after-hours trading, they pushed up shares by nearly $5 to just under $200. It had closed in regular session at $194.55 before the announcement, up 70 cents from Tuesday.
The revenue result extended IBM’s string of quarters to five in which it fell short of year-ago levels. It was also a miss from the consensus estimate, in which analysts thought IBM would pull in $25.4 billion.
Of special interest in Dutchess, the Systems and Technology Group took in $3.8 billion for the quarter, down 12 percent, but the units that employ the most people here did well. The System z mainframes showed a 10 percent growth, “good performance,” Loughridge said, and the chip-making microelectronics unit posted a gain of 6 percent.
When asked what customers are buying, Loughridge said that services have improved prospects but that the hardware area “will be a challenging equation.”
Lee Conrad, national organizer for workers group Alliance@IBM, listened to the teleconference and said, “There didn’t seem to be any indication of more large-scale job cuts, but I would expect smaller and individual cuts to take place under the radar.
“Listening to the call, I was struck how cold it was in how they treated the job cuts and the destruction of terminated employees’ livelihood to be a ‘benefit’ to the company,” Conrad said. “They forget that the employees ARE the company.”
The Alliance has documented at least 3,300 U.S. job cuts in the recent round, Conrad said.
Meanwhile, in Vermont, IBM is in a controversy with state government over its attempt to keep its job-cut numbers confidential on a claim of trade secrets.
According to the Burlington Free Press, Gov. Peter Shumlin has said that if he and his lawyers determine that the Vermont Public Records Act requires it, his administration will release the number regardless of whether IBM wants the figure made public. IBM has given the figure to the state but has told Vermont officials the number is commercially sensitive and claims it is exempt from disclosure under.
Shumlin said Wednesday that IBM should release the number.
“I wish you would just peel the Band-Aid off and give us the number,” the governor said, according to the Free Press.
IBM has obtained several tax breaks, grants or other concessions from New York and other states that tried to keep or attract IBM employment. The company stopped reporting U.S. headcounts in 2010 as its expansion of work overseas accelerated.