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IBM Cuts 1,500 Employees from Technology Services Unit

IBM laid off 1,570 people, primarily from an ongoing overhaul of operations in its giant technology services unit.

The Armonk, N.Y.-based company carried out a similar level of job cuts at the beginning of the month, for a total of 3,023 in this quarter and 3,720 for the year, according to IBM spokesman Edward Barbini.

That amounts to roughly 1% of the company, which employed 355,000 people at the beginning of the year. But even these small numbers reflect a big project inside IBM to transform its business.

Services is IBM's biggest division by revenue, but the advent of lower-cost competition overseas has forced IBM to work harder to improve the unit's profit margins. In the first quarter, pretax income for IBM's tech services fell 19%, even as revenue rose 7%.

Wednesday's job cuts were largely part of the company's response. Although IBM did not disclose where the layoffs were being made, the company had blamed the first-quarter profit shortfall on problems in its U.S. outsourcing business.

IBM executives say they expect no more layoffs this quarter. But other shifts like this -- IBM calls it "rebalancing" -- figure to follow from time to time.

That's because IBM's services overhaul not only involves cheaper labor -- IBM's work force in India rose from 9,000 in 2003 to 52,000 last year -- but also a quest to use less labor. That means rethinking and sometimes automating the ways that services contracts are carried out. Last year, IBM adopted a business-retooling system known as Lean to find such opportunities.

Robert Moffat, the IBM executive overseeing Lean, acknowledges it will reduce the need for some services labor, but he contends that it will also create new work for the company overall because customers will be getting more for their money.

To some degree, that dynamic could explain another figure disclosed Wednesday: that even as it has laid off 3,700 people this year, IBM has hired 19,000 others. Barbini would not provide a geographic breakdown.

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