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IBM announces 3,900 global job cuts but will continue hiring in ‘Higher Growth’ areas

By Nagasunder in US business news, posted January 27, 2023

IBM has announced 3,900 job cuts following similar moves by other tech giants.

The number is around 1.5 percent of its global workforce.

The move will cost the firm around $300 million and the layoffs will focus on staff who remained following the spinoff of the Watson Health and Kyndryl operations, according to Chief Financial Officer James Kavanaugh.

Despite the cuts, Kavanaugh said IBM continues to anticipate hiring in the "higher-growth areas."

IBM said in its forecast that free cash flow this fiscal year is expected to be US$10.5 billion, while revenue should increase in the mid-single digits.

Analysts predicted $9.18 billion in free cash flow and 1.2 percent annual sales growth.

According to Kavanaugh, IBM is benefiting from expectations that the US dollar will weaken this year.

Currency fluctuations should have a neutral impact on results this year, dragging them down in the first half before becoming a tailwind in the second, he said.

Arvind Krishna, CEO of IBM, has been attempting to shift the company's traditional infrastructure and information-technology services business to the rapidly growing cloud computing market.

After nearly a decade of no growth or declining sales, the company's revenue increased for the second consecutive year last year.

Fourth-quarter revenue was unchanged at US$16.7 billion, IBM said in a statement, while analysts estimated US$16.4 billion.

Earnings, excluding some items, were US$3.60 a share in the period ending Dec. 31, while analysts projected US$3.58 a share.

After the results, Bloomberg analyst Anurag Rana said The outlook “signals steady demand for its consulting and software products."

“Another key metric that stood out to us was the free cash-flow outlook of US$10.5 billion for the full year, which we believe now gives it some flexibility to pursue a software acquisition, especially given the recent decline in valuations.”

Last year, hybrid cloud revenue was $22.4 billion, an increase of 11 percent from the previous year.

Software sales increased 2.8 percent to $7.29 billion, while infrastructure sales increased 1.6 percent to $4.48 billion. Both categories were expected to decline, according to analysts.

Consulting increased by 0.5 percent to $4.77 billion USD.

Red Hat, the acquired division that has been a key part of Krishna's strategy, increased revenue by 10 percent, another comparatively slow quarter for a unit that has consistently posted growth of more than 20 percent.

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IBM’s workforce is 260,000, Kavanaugh said, about 22,000 lower than the figure reported in December 2021.

Source: Bloomberg

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