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A SPECIAL ANNEX NEWSFLASH

Updated 6/19/02, 5:15 p.m. PDT (adds Dow Jones comment)

More Job Cuts Rumored at IBM Research, in Germany

Big Blue Salami

 Butchering Instead of Cutting: Creeping Layoffs Seen as Creepy Layoffs

PHOENIX, June 19 - The agony of the Big Blue employees is continuing, as IBM continues to cut its work force like salami, one painful slice at a time.  The latest news from the IBM insider (unconfirmed) rumor mill is that IBM Research Division will slash its staff by "a minimum of 10%" at all of its U.S. labs (about 3,000 people), and that IBM Germany is laying off about 4,000 workers.

But the Dow Jones news reported at 5:16 (EDT) today that IBM Research, the pride and joy of the former IBM leaders, was laying off about 160 people, according to an IBM spokesperson.

With cuts of almost 7,000 IBM jobs having been already announced (read leaked out) in the U.S., the latest rumored layoffs would put IBM's worldwide payroll reduction at about 12,000, or almost 4% of the IBM work force at the start of the year. 

That's higher than the 9,000 rumored total when the news of the upcoming IBM layoffs broke in early May (see "IBM Likely to Eliminate 9,000 Jobs", the New York Times, May 10).  But it is still under the 20,000 or 6% of employment figure that IBM CEO, Sam Palmisano, was quizzed about during IBM's analyst meeting in New York (see "No New News at IBM", May 15).

IBM has not made any formal announcements about the total number of planned job cuts.

Which made one IBM insider wonder: "(I'm) still trying to sort out the method to this slow and painful layoff process. At least Boeing does it in 15,000 person-chunks."  To which we replied, "a 'method'?... try incompetence instead."

Of course, it makes good business sense for IBM to be cutting costs related to its ailing hardware businesses.  This includes R&D expenses, which were down 3% last year, down 6% in the first quarter, and we expect them to drop by 9% for all of 2002 ( from $5.3 billion to $4.8 billion - see "IBM 5-Yr Forecast: From Here to Eternity?", Apr. 2002).  But trying to do it on the sly and in a piecemeal fashion is nothing short of incompetence, especially from a PR standpoint.

As we said in our June 4 Annex Newsflash, Sam's Dull Scalpel, "IBM's creeping layoffs are being seen more as creepy layoffs by an increasing number of Big Blue employees, according to the feedback we are getting... That's like operating with a dull scalpel.  Piecemeal surgery only prolongs the agony as it puts off the inevitable."

The CBS Market Watch columnist, Mike Tarsala, agreed.  "It makes you wonder what else IBM's executives are hiding when they can't flat-out tell shareholders how many employees they've jettisoned so far this year and how many cuts they are targeting," he wrote in his June 5 column.

Shareholders Weeping, "Sir Lou" Laughing?

The IBM stock closed at $73.30 today (June 19), only a notch above its 52-week low of $73.25, set last Friday (June 14).  Actually, these are 31-month lows.  IBM last traded in the $73 range on Nov. 4, 1998, when it closed at $73.16.  

The bulk of Lou Gerstner's insider sales occurred after that date (see "Sir Lou OutLayed Lay!", Apr. 1, 2002):

The former IBM CEO must be laughing all the way to the bank.  But the rest of the IBM shareholders may not feel the same way.  They have seen the value of their stock drop by about $90 billion this year alone [IBM is down 42% since its high on Jan. 9, versus a 2% drop for Dow Jones Industrials (DJI) during the same period.  IBM is a part of the DJI].  

In fact, the erstwhile "bellwether" stock, Big Blue has become a beacon for stormy weather.  This year, IBM has underperformed not just the DJI, but also the S&P and Nasdaq indexes.  And by a considerably margin, too:

With the latest cuts at IBM Research, guess the Big Blue shareholders can also say goodbye to future chess championships of the world, as the Deep Blue morphs into Deep Blues. :-)

 Happy bargain hunting!

Bob Djurdjevic

Meanwhile, the Annex web site hits continue to go through the roof, and IBM.COM is still the No. 1 visiting site (accounting for 16% of total hits in May), even ahead of the Internet's behemoth AOL (with 13%):

When IBM employees want to find out the truth about IBM, many increasingly turn to Annex, not Armonk. 

[Also check outBig Blue Salami (June 19),  Sam's Dull Scalpel (June 4), Looming IBM Write-offs (May 23), "No New News at IBM" (May 15),  "Looming IBM Layoffs" (May 14),  "Sam Is No 'Change Agent'," (May 6), Additional Stock Buybacks Authorized (Apr. 30, 2002),  "IBM 5-Yr Forecast: From Here to Eternity?" (Apr. 2002),  “Tough Times, Soft Deals,” (Apr. 25, 2002), "A Disastrous Quarter," (Apr. 17),  Industry Stratification Trend (Mar. 30, 1990),  “Gerstner’s Legacy: Good Manager, Poor Entrepreneur” (Jan. 2002),  "Big Blue Starting to Unravel," (Apr. 8, 2002), SEC Launches Formal Probe of Wall Street Research (Apr. 25, 2002),  “SEC to Tighten Stock Option Rules” (Apr. 5, 2002), "Sir Lou OutLayed Lay!" (Apr. 1, 2002), "IBM Pension Fund Vapors," (Mar. 23, 2002), Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999),  IBM 5-year Forecast 2001: An Unenviable Legacy (June 2001) "Break Up IBM!" (Mar. 1996), Fortune on IBM (June 15, 2000), “Smoke and Mirrors Galore,” July 2000), Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999)Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998)Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97),  "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97,  Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97;  “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999),  "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom", “Louis XIX of Armonk,” (Aug. 1996), "Mountain Shook, Mouse Was Born" (Mar. 25, 1994) etc.]

Or just click on and use "financial engineering" or similar  keywords.

 






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Volume XVIII, Annex Newsflash No. 2002-11
June 19, 2002

Editor: Bob Djurdjevic
Published by Annex Research
e-mail: annex@djurdjevic.com

P.O. Box 97100, Phoenix, Arizona 85060-7100
TEL/FAX: (602) 824-8111

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