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Tech job bloodbath comes to IBM, CFO links layoffs to Kyndryl, Watson Health

Human Capital leaves the building

IBM is the latest tech company to jump on the layoff bandwagon, with news it would reduce its workforce by around 3,900.

The roughly 1.5 percent of IBM's 260,000 person headcount is not nearly as large a cut by number as Microsoft's latest reduction of 10,000, Amazon's 18,000, Salesforce's 8,000, nor Alphabet's 12,000. However, it does contribute to the growing number of unemployed professionals from the tech industry.

IBM chief financial officer James Kavanaugh first confirmed the layoffs to Bloomberg, saying they would focus on the workers "remaining" after its Kyndryl and Watson Health units were spun off, and calling them a "ballpark" figure.

The CFO also told Reuters IBM is still "committed to hiring for client-facing research and development."

The company said on an earnings call last night that it expects to spend $300 million in severance costs in the first quarter of 2023.

IBM completed the spinoff of its infrastructure services biz into a separate entity at the beginning of November 2021.

News of the cuts was released the same day as the company's Q4 2022 earnings. The earnings report revealed cash flow was at $9.3 billion. Its target for 2022 was $10 billion.

"There were some external factors that we faced this past year that impacted our profit and cash," said CEO Arvind Krishna, who cited exiting Russia, wage inflation and a strong dollar as some of those factors.

"We were not expecting the currency headwinds to be as severe as it turned out to be. That's certainly impacted," said Krishna. "And I'll acknowledge inflation as in wage inflation showed up and impacted our margins in consulting a lot more than we were expecting."

"Now an answer could have been to not hire people and to not give that but that would have resulted then in lower capacity at the end of this year, which would not have allowed us the confidence into the growth, both in consulting and in software that we are now committing for 2023," added the CEO.

But Big Blue has reported a solid pipeline and revenue growth in all segments. Quarterly revenue sat at $16.7 billion, up 6 percent in constant currency for the quarter.

Krishna attributed the success to IBM's execution of hybrid cloud and AI strategy.

"The growth was broad-based across our software, consulting, and infrastructure segments, as well as across geographies," said the CEO.

Kavanaugh said on the call last night:

As we talked about, human capital is all pretty much a natural hedge because your cost is basically matched with your revenue outside of global delivery. But in a product-based business, our costs, like the industry is predominantly US.

Earlier this month, investors sued 13 current and former IBM execs on grounds the company used mainframe sales to fraudulently prop up newer business units, thereby allegedly deceiving the market.

The lawsuit claims IBM lied to investors about its progress in developing Watson, cloud technologies, and more by deliberately misclassifying mainframe deal revenue.

A similar case popped up last April and August of 2022, with shareholders demanding in writing that IBM's board investigate the allegations.

IBM has also been the subject of numerous age discrimination and demotion lawsuits.

The layoffs are the latest in a tech job bloodbath that has seen 200 companies lay off a whopping 59,448 employees in 2023 so far, due to a combination of factors, including overhiring during the pandemic boom, as well as a desire to minimize operating expenses as the economic forecasts turn gloomy. ®

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