More trouble for IBM. According to reports, IBM is forcing the employees in its hardware business to take a week off with only one-third pay to cut costs as sales plummet. During that week, which is due at the end of this month, executives will not be paid either.
IBM Workers On Furlough
The report surfaced this morning on the Bloomberg financial wire service. It says that IBM has decided to furlough hardware employees in the US in an attempt to meet financial targets for the end of the year.
It has been clear for some time that IBM will have to do something with its hardware business as revenues continue to decline. At the end of Q2 we already saw that revenues fell there by 12% to US$ 3.76 billion on the same quarter a year previously.
However, even before this, IBM had been in talks with Lenovo with a view to selling its x86 server business, but the talks collapsed as neither could agree on the price.
But IBM is operating in a hardware market that is struggling globally as sales are hit by tightened budgets, and it was forced to announce lay-offs in the quarter to the end of June. This resulted in the loss of 3,300 jobs in Canada and the US at a cost of US$ 1 billion, with the possibility that there could be more job cuts in coming quarters.
Jay Cadmus, a spokesman for the Systems and Technology Group, cited on Bloomberg, said that IBM had looked at a number of different ways to “balance the organization” but, for want of any other solution, decided that the furlough was the best option.
IBM’s Hardware Problems
IBM is not the only company in the hardware space that has been facing problems, but its ongoing inability to turn this around is causing the markets some anxiety. In Q1, its hardware sales fell 17% on the year, while increasing interest in cloud computing and internet services saw it drop another 12% in Q2.
However, after a poor Q1 earlier in the year, it appears to have turned a corner in other areas of its business with software up 4% to US$ 6.4 million.
Furloughs, though, are not a permanent solution and IBM has implemented them before. It had spoken of divesting some of its businesses in both Q1 and Q2, but admitted finally during the last earnings call that it would not happen this year.
On top of this, as we saw last week, IBM is also being investigated by the Securities and Exchange Commission for the way in which it reports its cloud computing revenues. It has been a difficult month for IBM, but with the company firmly focused on achieving its Roadmap 2015, it looks like there could be more trouble ahead.