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A SPECIAL ANNEX NEWSFLASH

Gerstner's "Victory Lap" around IBM Facilities

IBM Layoffs Confirmed

 SEC Filing Shows IBM Laying Off Almost 16,000 People, Mostly in Services

TUCSON, Aug. 14 - Two days after we had said IBM was going to have to cut more jobs, partly as a result of its $3.5 billion PwCC acquisition, the Big Blue disclosed in an SEC filing on Tuesday that it was slashing more than 15,600 jobs.  

Most pundits expected the total number of jobs cut to be around 8,000. Our estimate was in the 12,000 to 15,000 range [see Big Blue Salami (June 19), Looming IBM Write-offs (May 23), Looming IBM Layoffs (May 14)].

IBM reported on Aug. 13 cutting 14,213 jobs, with the majority in the IBM Global Services (IGS) unit.  Some workers were also laid off in its servers and software businesses.  In another batch of layoffs which became known earlier, IBM dismissed 1,400 workers from the company's Microelectronics division, which manufactures semiconductors.

It was the first time IBM has publicly confirmed and quantified its layoffs, which have been carried out quietly until now, with announcements being made only to the affected employees.  

By Sept. 30, when most of the laid-off workers are expected to have departed, IBM's work force will have been cut from 320,000 to around 305,000, IBM spokesperson said, according to an Associated Press report this morning.

At the same time, however, IBM is in the process of adding some 30,000 to 35,000 employees to the IGS payroll as a result of its PwCC acquisition.  As we said in our recent report, this is certain to result in additional layoffs and hundreds of millions of dollars of related one-time charges, which will be probably taken in the fourth quarter.

For an excerpt on our report about this IBM acquisition, check out "Half or Double Trouble?" (Aug. 12).

Gerstner's "Victory Lap"

Meanwhile, the formed IBM CEO who steered the company into today's heap of trouble appears to be taking a "victory lap" around various IBM facilities.  During his last week's "town hall" meeting with IBM employees at the Research Triangle site in Raleigh, NC, here is what "Sir Lou" had to say, according to one attendee:

  • Next five years - best ever?

Gerstner was EXTREMELY bullish on IBM's positioning for when the certain positive turn in the economy happens. He believes that the next five years could be IBM's best ever.

  • Selling total solutions

One of the key changes that Gerstner pointed out is that IBM customers buying patterns are going through a significant change. 

Customer's are tired of being the final integrator of the HW, SW, Networking and Services that IBM, and other competitors sell. Customers continue to look to our industry to provide total solutions, not just all of the pieces. 

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Annex Ed.: We could hardly contain our laughter when we read the above comment.  Gerstner is talking in FUTURE TENSE about a 12-year old trend that we predicted in March 1990!  (see Industry Stratification Trend (Mar. 30, 1990).  If that isn't an indication of how out of touch the former IBM CEO is, then we don't know that is.

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  • Selling "true value," not boxes

In addition, Gerstner believes that our industry has been late in presenting "True Value" to our customers. He believes that it stems from a "speeds and feeds" oriented history and culture. Lou believes that we must continue to strive to break out of the "speeds and feeds" mind-set and continue to strive towards providing total solutions with measurable value.

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Annex Ed.: Selling "true value" rather than boxes was another prediction we made in March 1990.  Which is why it is so amusing to read this proclamation now, in August 2002.

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  • On "resource actions" - IBM euphemism for layoffs

One of Gerstner's points really hit home. He acknowledged how tough these times are particularly in terms of resource actions. However, from a pure market perspective, Gerstner likes these tough times for two important reasons; first true leaders emerge from within the business, and second, tough market conditions offer organizations the opportunity to leapfrog the competition by making bold strategic moves by anticipating how and when the market returns. 

He used this point as a lead-in to our recent PwCC announcement. He is clearly very proud that we got PwCC for one fifth the price that one of our key competitors, HP, attempted to get them for only two years ago. Lou echoed the message that the PwC acquisition puts IBM in an undisputed leadership position in the Systems Integration space which is a vital area to providing value to our customers.

  • Best competitive position

Gerstner strongly believes that IBM is in the best competitive position he has seen in his career. He emphasized this message by pointing out how many of IBM competitors are trying to emulate IBM and our broad solution portfolio.

  • Proudest decision - not breaking up IBM!

Finally, addressing the question "what are you the proudest of during your tenure at IBM"?, Gerstner said that it was changing IBM's course of splitting up into small business units that would compete on their own rather than looking at the strength of IBM's as a whole. He believed then, as he does now, that the IBM value proposition is its ability to bring total solutions to customers by bringing all of the pieces together and integrating them for the customer. 

This triggered Lou to make a plea to us, as IBMers, to resist the ever-present force to work as independent business units rather than one IBM. Lou's point was that it is often harder to force us to work as one integrated IBM rather than separate entities. And that working as one IBM was critical to our success.

Spoken like a true emperor (see “Louis XIX of Armonk,” Aug. 1996, and "Break Up IBM!" Mar. 1996).

 Happy bargain hunting!

Bob Djurdjevic

[Also check outWall Street/Main Street Chasm (June 25), “Wall Street Casino,” (June 21), Big 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.]

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Volume XVIII, Annex Newsflash No. 2002-13
August 14, 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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