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Last Updated: Thursday, 5 May, 2005, 21:59 GMT 22:59 UK
IBM to axe 13,000 jobs worldwide
German worker wearing T-shirt criticising IBM
Earnings at computer companies have been on a roller-coaster ride
Computer giant IBM will cut 13,000 jobs worldwide, or about 4% of its total workforce, as part of a restructuring aimed at boosting profits.

Most of the job losses will be at IBM's European operations as the firm looks to focus on high-growth markets.

IBM, the world's biggest computer company, said the plans would cost between $1.3bn (684m) and $1.7bn.

The company employs 100,000 staff in Europe, with about 25,000 of those working in the United Kingdom.

'Fear the worst'

IBM said that the redundancies would mean cost savings of between $300m and $500m in the second half of this year.

That figure should triple in 2006, the company said.

By the close of trade on the New York Stock Exchange, shares in IBM were down 2.05% at $75.50.

I don't know how they are going to get 10,000 people to quit
Mark Herskovitz, Dreyfus

IBM's chief financial officer Mark Loughridge said the west European market was performing poorly so jobs would be lost in the UK, Germany, France and Italy.

He gave no figures on how many jobs would be lost in each country.

Answering questions after a conference call with analysts, he said the job cuts were new, and not "bundled" together parts of an ongoing restructuring.

A spokesman for the UK workers' union Amicus called the move a "slash and burn" reaction to poor results.

"We fear the worst, given that it is quicker, cheaper and easier to get rid of workers in the UK than elsewhere in Europe," the spokesman said.

'Sizable restructuring'

The news comes just weeks after IBM reported worse-than-expected earnings in the first quarter.

The New York-based firm blamed a failure to close business deals and slow economic growth in key European markets.

The world's biggest computer maker surprised markets when it said net profit for the three months to 31 March were $1.4bn (745m) from 1.36bn a year earlier, while sales were $22.9bn, less than analyst forecasts of $23bn.

IBM logo
IBM will create a number of smaller, more flexible local operating units in Europe to increase direct client contact

As the results were revealed Mr Loughridge warned that a "sizable restructuring" would be undertaken.

Analysts said that the threat of job losses had hit performance and according to Goldman Sachs analyst Laura Conigliaro, "European sales seemed particularly disrupted as rumours flared in the final weeks of the quarter".

Ending the uncertainty, IBM said it now plans to realign its operations and organisational structure in Europe to reduce bureaucracy in lower-growth countries.

That move should eliminate "the need for a traditional pan-European management layer to coordinate activity", it said.

"IBM will create a number of smaller, more flexible local operating units in Europe to increase direct client contact," it added in a statement.

Most of the redundancies in Europe will be voluntary and talks have already begun with unions and worker councils over the timing of the job cuts in Europe, company spokesman John Bukovinsky said.

Helping hand

Analysts questioned whether the company would be able to trim its workforce without resorting to forced redundancies.

"I don't know how they are going to get 10,000 people to quit," said Mark Herskovitz, a fund manager at Dreyfus.

Mr Herskovitz said that IBM's problems were not linked to a wider slowdown in the global technology industry.

The company already has taken steps to streamline its operations and has sold its personal computer division to China's Lenovo for $1.75bn.

IBM has been trying to find its correct staffing level for years, and its worker numbers have fluctuated since the late 1980s.

Employee numbers peaked at 405,000 in 1985, before hitting a low of 219,000 in 1994.

IBM had 329,000 staff worldwide as of December last year.

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