Making it clear that he wants to clear all the misery out of the way in one vast hit, IBM Corp’s new chairman Louis Gerstner yesterday announced that 85,000 people will leave IBM this year, up from the 25,000 planned at the start of the year, and that the company will be down to 225,000 employees by the end of next year, which comes close to the number at which more pessimistic observers believe it can stabilise. Moreover the cuts this time will be primarily outside the US: IBM UK Ltd has already cut savagely, which implies big new cuts on the continent and in Japan so far as the latter is politically feasible. The cost of this additional blood-letting is $6,000m, to which $2,900m has to be added for further plant consolidations and closures, leading to a whopping $8,900m in additional charges and a net loss for the quarter of $8,000m. Turnover for the quarter was down, though not by as much as in the first quarter: it fell 4.3% to $15,520m. And the company is beginning to see the benefit of all the bloodletting – selling, general, administrative and research and development expenses fell 9.5% to $5,863m. The dividend is cut by more than half, to 25 cents, from 54 cents last quarter. IBM says that the moves will result in savings of $4,000m annually. Commenting on the moves, Gerstner said getting the cost and expense structure in line with the revenue realities of the industry was his highest near-term priority: If our current view of future industry revenue and demand proves incorrect, we will have to take further actions. But if our assumptions prove correct, we believe we will be able to absorb, without resorting to additional special charges, the costs associated with any future productivity improvements.
