Rumored Layoffs at IBM Rochester Not True

Published: September 17, 2007

by Timothy Prickett Morgan

For the past couple of weeks, people have been asking me if there have been layoffs inside of IBM's Rochester, Minnesota, facility, where the System i and System p Power-based servers are manufactured for the North American market. These rumors are not true, according to sources at the company.

In the early part of the summer, I heard second-hand from an ex-IBMer who went on a tour of the facility while wheeling around the country on vacation, and what I was told is that there was not a lot of activity on the factory floor, which looked empty. At the time, of course, it was the summer doldrums and IBM had just finished up its second quarter, so I was not surprised that the factory might be a little slower than usual. In any event, I worked through IBM channels and was told by a high-level executive through an IM chat that this was ridiculous and that there were not any layoffs in Rochester.

Last week, I heard another rumor, which was more explicit, claiming that 1,000 to 1,500 people had been let go or would be let go from the facility. I made a round of calls again, and eventually got in touch with Jay Cadmus, director of public relations for IBM's Americas region, who stomped on this rumor. "I don't know where this rumor is coming from, but it is not true," he said, adding that such cuts at the Rochester facility, which has 4,400 employees, would decimate the workforce. That's exactly what I was thinking.

I also recalled IBM Rochester being a much bigger facility, in terms of its workforce, not the square footage in the factories out on Highway 52. Back in 1990, when the Rochester facility was home to the AS/400 as well as the place where some RS/6000s were manufactured and was one of the leading design and manufacturing facilities for 3.5-inch SCSI disk drives in the world, Fortress Rochester was considerably larger. Specifically, it had 8,100 employees, and according to the case study about the facility, won the Malcolm Baldridge manufacturing quality award in 1990. At the time, IBM had sold more than 400,000 midrange servers, including AS/400s and System/3X boxes, and raw disk drive sales accounted for a fifth of its sales. Between 1986 and 1989, as the System/38 was being sunsetted in place of the AS/400, IBM brought customers and channel partners in on its quality control processes while at the same time improving the manufacturing productivity of the factory by 30 percent and cutting development time in half. In 1989, when the AS/400 was just getting rolling, other changes implemented in Rochester had reduced manufacturing time by 60 percent since 1983, when the System/36 was launched, and over this time product reliability had increased by a factor of three, enabling IBM to profitably extend the warranty on its midrange machines from three months to 12 months. It is no wonder that IBM gained market share in the midrange system market in 1988 and 1989.

A decade later, in early 1999, when this Baldridge case study was being put together, an AS/400 shipped out of IBM's factories every 12 minutes and the AS/400 business represented about 15 percent of IBM's annual revenues. The installed base of AS/400 machines had hit 600,000, according to this case study, which referenced data IBM quoted at the time. And by 1999, IBM Rochester had only 7,000 employees, and here we are another eight years later, and Rochester is down to 4,400 employees and the System i product line--including hardware, software, maintenance, and services--might be about 5 percent of IBM's annual sales.

So while there have not been layoffs this week, round after round of layoffs in the past 18 years as IBM has tightened its belt, shifted of some manufacturing and probably some development to other parts of the globe, and absorbed lots of technology from other IBM divisions has nearly cut the employee count in half.

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