IBM will be trimming its workforce but plans on hiring more soon

IBM described the cuts as mainly a result of earlier asset sales, rather than a weakness in its business .
26 January 2023

IBM will be trimming its workforce but plans on hiring more soon (Photo by JOHN MACDOUGALL / AFP)

International Business Machines Corp, more commonly known as IBM, is joining its technology peers as it plans to trim its workforce — but the firing will be accompanied with more hiring, though only within the company’s “higher-growth areas.” The reductions, according to chief financial officer James Kavanaugh, will focus on workers remaining after spinning off the Kyndryl and Watson Health units.

In a report by Bloomberg, IBM described the cuts as mainly a result of earlier asset sales, rather than a weakness in its business — so perhaps its stance on hiring more is an inevitable one. The reduction in employees will amount to a “ballpark” figure of 3,900, representing 1.5% of the company’s workforce, Kavanaugh said.

The cuts will also cost the company around US$300 million this quarter, as Kavanaugh said the company will pay for employee severance costs. IBM is among the rare few, — if not the only Big Tech company — to have a hiring plan in 2023. In 2021, IBM spun off its legacy technology services business as a separate company, Kyndryl. Then last year, IBM sold off its healthcare data analytics business, Watson Health.

IBM announced the layoffs and hiring plans during a conference call reporting its financial results for the fourth quarter of 2022. The company’s operating profits and revenue were in line with analysts’ forecasts, though IBM reported an impressive growth in its businesses selling cloud, artificial intelligence and data analysis software. Meanwhile, the company’s consulting business grew by only half a percentage point, including the foreign-exchange impact. 

“Our solid fourth-quarter performance capped a year in which we grew revenue above our mid-single digit model,” IBM chairman and chief executive officer Arvind Krishna said. He added that clients in all geographies increasingly embraced IBM’s hybrid cloud and AI solutions as technology “remains a differentiating force in today’s business environment,” said Krishna. “Looking ahead to 2023, we expect full-year revenue growth consistent with our mid-single digit model.”

The company also expects around US$10.5 billion in consolidated free cash flow, up more than US$1 billion year to year. What Kavanaugh is certain of is that IBM’s client-focused portfolio and strong recurring revenue stream positions it well for continued growth, solid cash generation and returning value to shareholders through dividends.

That compares favorably to much of the rest of the Big Tech marketplace so far in 2023. Largely undertaken as a cost-cutting measure, layoffs are a way for companies to prepare for the worst, like an economic recession. The severity of 2023 so far is such that, as per Insider, around 1,600 tech sector workers on average have been laid off every day in January.

For context,  just last week, Google’s parent company, Alphabet, said it planned to lay off 12,000 of its workers, while Microsoft said it would cut 10,000 employees. By Monday, Spotify said it would reduce its staff by 6%, about 600 people. All in all, approximately 1,035 companies fired 158,951 tech employees in 2022, according to data. So far this year, 173 companies have offloaded 56,570 employees.