IBM Layoffs in the U.S. not necessary

IBM has been shifting jobs offshore. Management argues that jobs are being "rebalanced" or shifted to areas where business is expanding - where the customers are. So, one would assume that IBM is losing customers in the United States while increasing customers in BRIC countries. But, how do we determine where IBM customers are ? I found a clue in one of the footnotes in one of IBM's annual statements:

"Revenues are attributed to countries based on location of client and are for continuing operations"

Aha ! All we have to do is look at revenues to determine where the customers are ! IBM does not report revenues by country - only by region. They report three regions:

1. Americas
2. Europe/Africa
3. Asia

Asia includes India and China, the two countries where IBM is hiring the most. IBM hired about 30,000 people in Asia so far this year (2009) while laying off 10,000 in the U.S. - so for every worker laid off here, three are hired in Asia. That is a huge jobs shift to Asia. It's been happening every year. (It should be noted that Latin American IBM employment is growing also - 7,000 hired so far in 2009.) So one would expect a tremendous growth of revenues (customers) in Asia. Well, let's look at revenues.

IBM revenues have been growing every year since 2004. The overall revenue numbers are:

2004 $85.6 billion
2005 $88.3 billion
2006 $91.4 billion
2007 $98.8 billion
2008 $103.6 billion

Nice ! 2009 is expected to be a decline in revenues to $96 billion, but due to cost cutting earnings are expected to hit another record. But, I'd like to look at revenues only here since IBM claims there is a tie between revenue location and customer location. Total IBM global employment has grown every year (including this year !) with the total employment numbers by years as follows:

2004 325,000
2005 326,000
2006 350,000
2007 385,000
2008 395,000

So, revenue dollars increased 21% from 2004 to 2008, and employment numbers increased 21% from 2004 to 2008 also. Consistent. Overall revenues per employee have remained constant. Yet, earnings have grown at a greater pace than revenue growth. Why ? Cost cutting.

But jobs are being destroyed in the US and transferred to the BRIC countries. So one would expect an equal shift in revenues away from the U.S. and towards these developing countries. So let's look at IBM revenues from Asia as a percent of overall revenues:

2004 20.9 %
2005 20.1 %
2006 19.2 %
2007 19.7 %
2008 20.4%

Say what what ? Revenues in Asia are pretty much flat at almost exactly 1/5 of total revenues each year. As a matter of fact, revenues have stayed about the same year to year, percentage wise, from 2004 to present: about 20% of revenues come from Asia, about 42% of revenues come from Americas, and about 34% come from Europe/Middle East/Africa. It does not vary by more than 1% each year.

So revenues are not shifting. Therefore, customers are not shifting. Yet employment is. Hmmm. So let's look at the number of IBM employees in the U.S., and how much it is declining.

2004 140,000
2005 134,000
2006 127,000
2007 121,000
2008 115,000

The number of IBM employees in the United States has decreased 18% between 2004 and 2008. The decline averages about 6,000 jobs lost per year. In 2009, the decline is 10,000 (so far). Meanwhile, IBM employment in India increased 326% (23,000 in 2004 and 98,000 in 2008) over the same time period.

Customers are not moving to Asia. Revenues are not increasing in Asia. But jobs are shifting to Asia. That is because U.S. work to support U.S. customers is being done by Asian workers. Next time you call the IBM U.S. Help Desk, ask the person where they are located. Also, IBM internal operations are shifting to Asia. IBM Global Procurement is now based in Beijing. All purchasing for U.S. operations is done by a buyer in India. IBM U.S. payroll is now done in Hungary. This is purely a salary arbitrage play. IBM is saving money in salaries by moving jobs to lower cost countries. Shame on IBM.

Culling Talent

I saw this post on Motley Fool, where some investor had nice things to say about IBM stock:

"It's had a great run lately, but I believe this is a great company to own for the long-term. First, IBM does a fantastic job cultivating talent throughout the organization. Second, IBM has consistently remade itself as a company... to rise to the top of the pack each time. Thirdly, this is a cash flow machine."

Cultivating talent ? IBM is cultivating talent ? I think the author may have made a typo there. I think they may have meant to say "culling talent." And culling and culling and culling and culling. The author should visit any IBM U.S. site and ask the talented staff how well they are being cultivated.

The culling count in the U.S. is 10,000 so far this year, which may climb to 16,000 by the end of the year.

For what it's worth, I agree with the second and third points. IBM has remade itself. And IBM is a cash flow machine. But, what do they do with that tremendous cash flow ? Buy back IBM stock and buy companies. Cultivate talent ? Not so much.

Job Destruction

RPI President On Innovation - CNBC.com

RPI President Shirley Ann Jackson was on CNBC Tuesday, Dec. 1, to talk about innovation and job creation in the United States. Jackson is on President's Council of Advisors on Science and Technology and the board of directors at IBM among other accomplishments.


I watched the interview on Tuesday, and I would like to know why Caruso-Cabrera did not ask this question: IBM has laid off 10,000 employees so far this year, while hiring 50,000 overseas. What can you do to get IBM to participate in job growth, and not job destruction, in the United States ?

The more I think about this, the more disturbed and angry I become. The topic of the day on Power Lunch was job creation. So they have on a woman who is on the board of directors at IBM. IBM has done as much as any company in the United States to destroy U.S. jobs in 2009. Not only are they offshoring jobs (10,000 U.S. jobs shed, 50,000 foreign workers hired, net gain 40,000), but they help other companies outsource (read: offshore) jobs too. Heck, they even applied for a patent for software to help companies offshore jobs !!! I'd be willing to bet that IBM is directly or indirectly involved in 50,000 to 100,000 (or more) U.S. employees becoming unemployed this year. As I've said before, IBM and other companies are using this recession as a smoke screen to shed older, expensive U.S. workers and replace them with young, foreign, cheap labor.

They bring on this credentialed, super-intelligent academic woman who probably has VERY LITTLE notion about the U.S. job losses at IBM. She waxes eloquently about "investing in human capital" and "innovation" and so forth, but she puts forth no concrete (read: executable) plans or ideas.

I can picture Shirley arriving back home in Rhode Island, and receiving the phone call from Sam P:

Sam: "Hi Shirley, saw you on CNBC. Well done. You didn't once mention jobs at IBM. I have to thank you for that."
Shirley: "Yes, I floated the usual eloquent baffle and as usual the host tossed me softball questions."
Sam: "You hit a home run. Keep up the good work."
Shirley: "Thanks. Hey, the stock is doing great. My 4,000 IBM shares are now worth half a million !!! Combined with my $250,000 annual IBM compensation, plus fees, I'm really raking it in !! And all for just a few hours of work per year."
Sam: "Glad to make sure you are well compensated - as long as you return the favor ! Nudge nudge wink wink."

I'm in the Newspaper again today:

Christine Young interviewed me for about 60 minutes over a two day period and wrote an excellent article. Pasted here in it's entirety since it is not lengthy. If there is interest, I may post my report in detail. Frankly, while I think there is wide belief that companies shed older workers, most people feel that they can't do anything about it. That's how I feel. Shed. And I have to lie down and take it.

Ex-IBMer says layoffs target older worker

Posted: June 08, 2009 - 2:00 AM

Rick Clark has advice for anyone considering a job at IBM: Plan that your career will end at age 50.

Clark, 51, a former IBM engineer with a master's degree, was stunned to learn on Jan. 27 that he would lose his job after 11 years. Not long before, his manager in East Fishkill had given him a substantial raise to prevent him from accepting a job offer from an outside company.

But it was true; Clark's severance paperwork showed he was among 1,213 employees, specified by age and position, in IBM's Systems & Technology Group to be terminated.

That's when Clark noticed something else.

"Most of the people selected for layoff were high ages," he said. "It looked like they had selected older workers."

Using spreadsheet software, Clark entered the ages and job titles of all 19,226 STG employees — also information in the severance paperwork — including those not chosen for termination.

His analysis found:

About 4 percent of those ages 20-49 were fired.

About 8 percent of those ages 50-59 were fired.

About 18 percent of those ages 60-69 were fired.

The document explained that in choosing whom to let go, IBM had performed a "total assessment of an employee's relevant skills and performance within a job group, with seniority used as a tie-breaker."

Because 60 percent of those terminated were age 50 and older, it appeared using seniority as a tie-breaker meant more older workers were fired.

"If you're over 50, you have a one in five chance — 20 percent — of getting laid off," he said. "If you're in your 20s or 30s, you have a 3 percent chance of getting laid off."

Clark says his own findings shocked him.

"I expected maybe a slight skew," he said, "but it was startling to me how much of a skew it was."

Clark, who plans to become a schoolteacher, says he has no intention of suing IBM for age discrimination because such lawsuits are difficult to win, and he understands the company's goal is to cut costs.

"The higher salaries are earned by senior workers," he said. "I wouldn't accuse them of age discrimination, but the result is age discrimination."

"IBM complies with all applicable laws," IBM spokesman Doug Shelton said after reviewing Clark's report.

Clark, meanwhile, warns his aging former colleagues to plan an "exit strategy."

He advises over-50 IBMers to update their resumes, eliminate debt and "think about what you might want to do for a living for the rest of your working life."

Christine Young covers IBM. She can be reached at 346-3140 or cyoung@th-record.com. IBM Notebook appears Mondays.

IBM In the News Badly

IBM is getting some very bad press lately for laying off 10,000 workers so far this year. Rumors are that more layoffs will occur next week.

What is causing consternation is not that IBM is laying off. People can accept difficult times if the reasoning makes sense. In this economy, many businesses are hurting. But not IBM. IBM continues to record profits and record revenues every year, up to and including 2008. So people wonder why, if IBM is doing so well finanically, are they laying off workers (US workers in particular) into this terrible economy ? The answer is that the layoffs don't make sense to most people. Until you understand this:

IBM is in the process of transfering jobs offshore. As has been reported in many places, IBM US employment has been in decline for years while IBM employment numbers offshore have been increasing, especially in India and China. IBM is laying off workers in the US and replacing them in foreign countries.

This graph was posted in the New York Times article, Piecemeal Layoffs Avoid Warning Laws:

I've perused the internet news world and found the use of these words to describe IBM practices:

at MC Press: Disturbing Questions About Corporate Ethics

at EE Times: IBM should come clean

at CNN: IBM draws criticism

Several others news stories and blogs have seen increasingly negative comments about IBM, both from insiders and outsiders. I expect the trend to continue.

Rick on NBC Nightly News, April 3, 2009

Posting today what has been up to this point the most interesting and exciting thing to happen to me since I was given notice. My name was given to one of the producers at NBC Nightly News. I am thrilled to have contributed to the growing public awareness of the "opportunistic" approach of US corporations in laying off US workers: blaming the recession, when in reality they are increasing staffing levels overall - just not in the US. US corporations are using the recession as a smoke screen to hide the true reason for the layoffs. For every worker laid off in the US, IBM is hiring two workers in developing countries, such as India and China. Yes, those economies are growing, but an increasing amount of work supporting US customers is moving overseas.

NBC sent a producer and cameraman to our house to film this segment. It was a memorable and fascinating experience. I was impressed by their professionalism, and ability to make us feel relaxed.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Business Cost Transfer

IBM leaves no stone unturned in it's effort to reduce costs. One of the most controversial is the transfer of the cost of doing business to the wallet of the employee.

I have three items in mind for this (and aware of several other). First, health care insurance costs. Second, food service costs. And third (my topic for today) is the cost for high-speed Internet for your home office. I'll write about health care and food service on another day.

IBM instituted a successful "work at home" program starting in the 1990's. IBM categorizes employees in several areas of "work at home," but the two most prevalent are "mobile" and "alternative workplace." Mobile employees may work at home a few days per month, may work in an IBM office building a few other days, and may travel to customer sites frequently. These employees are typically salespeople and business consultants. Alternative employees work full time at home, typically do not travel and do not have an office at an IBM facility. They work at the home office every day. These employees may get more robust home office equipment than a mobile employee. For example, an alternate employee may get a high end printer. Meanwhile, mobile employees get more robust mobility tools like cell phones and blackberries.

The "work at home" program works well because it is popular with employees. For the employee, it allows for greater flexibility in work-life balance. You can be at home when your children arrive home from school. You can more easily take care of personal tasks. You save money in commuting costs. For IBM, there are significant savings in keeping and maintaining office space. IBM boasts that the "mobility" program has saved IBM $100 million in Real Estate and facility costs.

One aspect that is not discussed much is the transfer of these "facility" costs to the employee. The employee pays for electricity to run the office. This is a modest cost, so most employees do not mind this. IBM has historically funded the equipment and services you need to run a home office. They will pay for a printer/fax/scanner, an ergonomic chair and other equipment for your office, and pay for monthly charges for phone and high speed Internet access. That is, until recently.

IBM has announced that they will not longer reimburse employees for high speed Internet access for work-at-home employees. If you work at home, you will pay for this out of your own pocket. This will save IBM significant dollars. This is unusual in the corporate world today - just about all companies that have work-at-home programs pay for internet access for home offices.

Rick in the New York Times

Rick Clark, 50, an engineer in East Fishkill, N.Y., had worked for I.B.M. for 11 years. He said he was disappointed in I.B.M. this time because the job cuts were deep and spread across so many businesses and came at a time when I.B.M. has been proclaiming its success. “I do think I.B.M., like other companies, has used this recession as an excuse to lay people off,” he said.

This was posted in the New York Times, March 6, 2009:

Piecemeal Layoffs Avoid Warning Laws
By STEVE LOHR
Photo by Evan Abramson

With the economy weakening, chief executives want Wall Street to see them as tough cost-cutters who are not afraid to lay off workers. But plenty of job cuts are not trumpeted in news releases.

Big companies also routinely carry out scattered layoffs that are small enough to stay under the radar, contributing to an unemployment rate that keeps climbing, as Friday’s monthly jobs report is likely to show.
I.B.M. is one such company. It reported surprisingly strong quarterly profits in January, and in an e-mail message to employees, Samuel J. Palmisano, the chief executive, said that while other companies were cutting back, his would not. “Most importantly, we will invest in our people,” he wrote.

Read more here:
http://www.nytimes.com/2009/03/06/business/06layoffs.html