IBM Rumors: Big Layoffs In Hardware, Protests In China

March 10, 2014 Timothy Prickett Morgan

The rumor mill is going round and round with talk about IBM‘s layoffs during the first quarter. The chatter as last week was coming to a close is that the layoffs are going to hit the Systems and Technology Group pretty hard and that there were protests at an IBM manufacturing plant in China.

It is not hard to figure out that Systems and Technology Group would be taking some hits, with sales and pretax earnings down in the fourth quarter. As we previously reported, sales at IBM’s hardware unit were down 26.1 percent to $4.26 billion in the fourth quarter and pre-tax income fell even further, by 78.8 percent, to $206 million. That is a decline of $1.5 billion in revenues and $768 million in pretax income, a lot of it attributable to the decline in mainframe sales but also to price competition and lower sales volumes in the Power and X86 server lines.

With IBM’s hardware sales down, it is not surprising that CNET is reporting that Big Blue is planning to slash around 25 percent of the Systems and Technology Group workforce. Those numbers have not been confirmed by IBM, and they will not be, either, since IBM doesn’t talk about layoffs, much less any specifics about them. (As I have said before, I think public companies should have to report where they are making layoffs so local communities can brace for the waves of unemployment.)

These layoffs do not include the 7,500 employees that will make the move from IBM to Lenovo Group should IBM prevail in selling its System x business to the Chinese computer company for $2.3 billion as planned. The reseller-focused CRN reports that employees of the System x Division are being told that they have to accept the transfer to Lenovo if the deal meets regulatory approval or give up their jobs at Big Blue. The way the deal is structured–which IBM says is normal–employees will not be able to work for either IBM or Lenovo if they don’t take the Lenovo position because of anti-solicitation clauses in their contracts. The idea behind these provisions is to keep employees from taking am early retirement package from IBM and then getting the job at Lenovo anyway.

An IBM spokesperson said last week that at any given time the company has over 3,000 open positions open. If this is true, it seems unfair that employees working for the System x division wouldn’t be able to apply for other jobs at Big Blue. But think about it. Where would they go? To another hardware division that has an even worse revenue drop? It doesn’t add up except for a select few who might have skills that transfer across product lines.

This seems to be precisely what some employees at IBM’s factory in Shenzhen, China, are upset about as they went on strike last week. WRAL Techline in the Raleigh region where IBM does a lot of System x development and near where Lenovo has its headquarters in North Carolina, translated some Chinese news reports about the strike in Shenzhen, which is outside of Hong Kong. This is also one of the factories that makes low-end and midrange Power Systems and PureFlex machines, by the way. You can see more footage of the protests at this link on NTD-TV. These employees are apparently being compensated with as little as $1,000 as their layoff package as part of the Lenovo buyout. So it looks like Lenovo is going to be using its own factories to make System x gear, not the one in Shenzhen.

What I want to know is how this will affect Power Systems manufacturing.

And on a larger level, I want to know how the broader layoffs are affecting research, development, manufacturing, and support for the Power Systems line. I have heard reports of long-time employees of IBM’s Power Systems techline support organization being let go, but nothing that tells the full story I am sure.