IBM is about to get hit with a massive reorg and layoffs

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REUTERS/Tobias Schwarz

Update 1/26: IBM responded via its official IBM Hong Kong blog calling the layoff figure "totally ludicrous." The company said that it had already announced it would take a $600 million charge for restructuring.


IBM is expected to go through a massive reorg next month that will reportedly see 26% of its 430,000-strong work force let go, or 111,800 people. If that figure holds true, that would make it far and away the largest corporate layoff event in history, breaking the record previously held by IBM, when it cut 60,000 in 1993.

The report comes from long-time Silicon Valley journalist Robert X. Cringely, who recently published an eBook on IBM's issues entitled The Decline and Fall of IBM. He blamed past CEOs Louis Gerstner and Sam Palmisano for making the mess and current CEO Virginia Rometty has done nothing to address them.

The problem is a complex stew of bad management – like laying off important people in the middle of a project – to unrealistic expectations from commercializing Watson and failing to adjust to the new era. The "M" in IBM may mean machines, but hardware is less than 10% of its business. Two-thirds of its business is in services, and the services pipeline has dried up.

Why? Well, according to an ex-IBMer I spoke to some time ago, who confirmed what Cringely wrote in his book, IBM is still wedded to services contracts in an age where companies are shutting down their internal data center entirely and moving everything to the cloud. If you don't have a data center, you don't need an IBM service contract to manage it.

That's why IBM grabbed Softlayer, the cloud services provider. It needed to get into the cloud fast because it was behind Microsoft, Google and Amazon. Since the purchase 18 months ago, IBM has put a huge amount of money into SoftLayer and there has been a number of announcements around SoftLayer services.

Cringely said the mainframe and storage areas will see deep cuts, which would be counterproductive considering IBM announced the new Z13 mainframe and hopes it will stimulate sales. That won't be easy when you cut the people who are supposed to sell it. Cutting storage in the era of Big Data and Data Lakes, where storage is vital to these concepts, also seems shortsighted.

And you have to wonder what a layoff of 110,000 people will do to the firm. That has to be jarring. I remember an old advertisement from the print days that said "What's worse, getting laid off on a Friday or being told to pick up the slack on the following Monday?" This will be undeniably upsetting to the survivors.

The question I have to ask is why isn't Rometty one of the 110k. IBM has seen 11 straight quarters of declining revenue and it's hemorrhaging customers, according to both my source and Cringely. It's becoming apparent she is not up for the job and can't pull the company out of its nose dive.

Cringely said the layoffs will begin next week and by the end of February, all of the employees will be gone. If nothing else, IBM's first quarter numbers will take a monstrous hit from the severance packages for 111,000 employees. To say nothing of what this will do to its customer confidence.

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