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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