Should IBM Workers Brace for Layoffs?

By Douglas A. McIntyre Published Oct 20, 7:13AM EDT

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Mistakes by management at International Business Machines Corp. (NYSE: IBM) have done enough damage to its P&L, that among the solutions could be cuts in expenses. As is the case at many companies, that often means job cuts.

Some of IBM’s divisions have done particularly badly. Revenue from continuing operations across the company fell 14%, compared to the same quarter a year ago, to $20.8 billion, and net income dropped 17% to $3.5 billion.

IBM almost certainly will continue to invest in its cloud operations and Watson, its artificial intelligence play. They are, according to management, the future of the company. However, all divisions within the company suffered double-digit losses in sales. Revenue in Systems Hardware was down 32% to $2.1 billion. Revenue from Global Services was off 12% to $4.3 billion. Some of these drops were because of currency adjustments. Some were reclassified because of discontinued operations and others due to the presentation of financials. However, the fact remains that IBM’s expenses fell less than revenue, by 8% for expense and other income. Expense to revenue was 27.8% in the quarter last year and 29.6% in the most recent one.

While cutting jobs is not the only manner in which a company improves margins, it may be the only one that IBM has. And it has dropped its forecast for the full year below its previous forecast. The new trend puts the company in a much worse position than just three years ago. IBM’s revenue in 2012 was $104.5 billion. On a trailing 12 months basis, the number has dropped to $86.9 billion, according to Morningstar. Based on the quarter just reported, that revenue will slip further to a run rate as low at $81 billion.

The reinvention of IBM has been a failure, continues to be so and likely will be so in the future. As revenue drops again and again, there is likely only one way to prop up earnings. Some portion of the workforce may well have to go.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.