IBM Layoffs: Office Space Movie, but Milton Makes Manager

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International Business Machines Corp. (NYSE: IBM) is showing employees that the company must be one of the worst technology companies to work for, period! Reports are out that IBM is starting that telegraphed round of layoffs. The problem here is that Big Blue is a company in the midst of losing whatever soul it had left. Things must feel like the movie Office Space.

Bloomberg TV reported that IBM is starting to cut more jobs as part of a previously targeted workforce and expense reduction. It was believed that most of the jobs would be overseas, but Bloomberg reported today that the headcount cuts are targeting multiple levels of employees. Bloomberg’s report signals that 6,000 to 8,000 jobs will be cut, aiming at $1 billion.

What is going on at IBM is that the company has lagged in any growth efforts. Sales have stagnated. We have spoken with others inside and outside on this matter and the issue is that IBM is treating its workers as if they were Wall Street so-called fat-cats where their pay and commission (bonus) structure keeps getting cut. The quest for $20 in earnings per share has led the company to not replace salespeople, managers, sales engineers and the like. The quality IBM employees are becoming more and more able to find better opportunities elsewhere.

While we did not go too deep into this, one former IBM-er said in an online post that IBM was even cutting its 401K contribution policy. His feeling echoes what we have heard elsewhere about management not being in touch with reality and not caring about its employees.

IBM has spent billions of dollars to buy back stock and has a plan to keep doing that. This will lower the share count and drive up the earnings per share. The real problem is that CEO Ginny Rometty is continuing down the same path that was set in place ahead of her. That $20 EPS promise by 2015 is an admirable one on the surface, but what good will it do if IBM keeps losing its good employees and keeps the ones that are merely thankful that they have their job. IBM runs the risk of having nothing but Miltons working at the company by the time the end of 2015. IBM is becoming Initech, and Milton is going to be the only guy left to be the office manager.

As far as the underlying problem, IBM has witnessed the death of growth. Sales in 2012 were $104.5 billion, down from $106.9 billion in 2011 but better than $99.9 billion in 2010. Now look at the Thomson Reuters revenue estimates: $103.5 billion for 2013 and $106.1 billion for 2014. Normalized earnings were $15.25 EPS in 2012, and expected to be $16.69 EPS in 2013 and $18.35 in 2014. Then let’s go ahead and say $20.00 EPS for 2015 because that is what the company keeps touting, but it is happening all on no sales growth. The explanation: job cuts, commission cuts, benefit cuts, shrinking the share count form buybacks, and focusing less on low-margin products. What a hell of a great DJIA stock story at Big Blue!

Wall Street did not not exactly rewarding IBM. (Updated for closing bell) The stock closed down 1.4% at $201.20 against a 52-week range of $181.85 to $215.90. Shares are up almost 6% year to date and that might be good in most mid-year points, but the S&P 500 is up about 14% and the DJIA is up almost 16% year to date.

Milton Office Space