Layoffs ahead for Big Blue services?
IBM rattled the markets on Thursday evening when it missed its first quarter earnings targets . Now, the industry is waiting to see how Big Blue--which rarely slips up on financial forecasts--will react.
An IBM insider on Friday said changes, most likely involving some layoffs, are planned for the middle of the second quarter.
Disappointing earnings from other tech companies fans fears that corporate spending on information technology is slowing, or is weaker than expected. Sun Microsystems saw its revenue fall, while Siebel and BMC Software issued warnings.
IBM's CFO Mark Loughridge blamed Big Blue's miss on "execution issues" particularly in signing contracts in its Global Services division. He said some countries, notably Japan, France, Germany and Italy, showed a weak appetite for tech spending.
But it's too early to call a broader industry downturn, he said.
Still, IBM is taking steps to tackle its shortfall. In his prepared remarks, Loughridge said that the company will address sales execution mistakes and shift investments from low-yielding to faster growing areas.
Europe may feel the brunt of these changes. According to reports , IBM is planning on laying off people in its services divisions in Germany, France and Sweden.
At every opportunity, IBM touts its "business process transformation services" strategy as its best high-growth service strategy. Those groups at risk of layoffs are in IBM's traditional maintenance and outsourcing services business.
To grow, IBM is girding for high-end consulting jobs such as taking over a company's human resources operations or striking a close collaboration between IBM and customers in developing industry-specific products and services. The latest example is revamping the United Arab Emirates' traffic control systems with wireless "black boxes" that can monitor drivers remotely.
IBM is confident its strategy is sound and that it can address its "issues." Because it is a bellwether for corporate tech spending, expect IBM's second quarter numbers to be closely watched.