Despite talk of major layoffs, IBM has a history of success

IBM to axe over 100,000 employees? The company hastened this week to counter claims in a story by Robert X Cringely in Forbes that it intends to make 26 per cent of its 400,000-plus worldwide workforce redundant, in a dramatic reorganisation of the 103-year-old firm.

The story got fast traction and was widely repeated across the media and the web. IBM has said there will be layoffs, but denied the numbers will be anywhere near those suggested in the Forbes report.

A Reuters story noted on Monday that IBM has regularly highlighted restructuring charges for the past few years that would indicate job cuts of 6,500 and 21,500 per year, anyway.

Cringely, however, was sticking with his story. If his estimate does prove correct, the layoffs would be the largest in corporate history. They would be close to double the number of people IBM laid off in 1993 – 60,000 – in what still remains the largest corporate layoff of all time.

The current environment has worrying parallels to that time for the company, however. In 1993, IBM faced unprecedented challenges after its traditional information technology market, based on sales of expensive “Big Iron” mainframe computers, took a massive hit, thanks to the impertinence of Moore’s Law.

In accordance with the Intel co-founder's observation, computer processors grew more powerful even as they shrank in size, while hardware costs also began to drop. Suddenly a company could do nicely, thank you, with far less expensive microcomputers, or even just some desktop PCs. IBM revenue slid.

IBM had missed, or perhaps more correctly, ignored, this monumental shift. In a period of turbulent industry consolidation, when many of information technology’s oldest names were being absorbed into other companies, IBM’s own future looked uncertain, and it was moving towards bankruptcy.

Drastic action was needed. A new, outsider chief executive, Lou Gerstner, was appointed. He cut those 60,000 positions in one go in July 1993, taking an $8.9 million charge. And he refocused the company toward new trends in computing: PCs and laptops, software and services.

In so doing, he became a legend in corporate history, turning around Big Blue and building it back up into one of the industry’s bellwethers.

Dotcom collapse

Gerstner stayed at the helm until 2002, just after the dotcom collapse, when he was succeeded by

Sam Palmisano

.

Palmisano is also widely regarded as having been a solid leader for the company, moving it onward into new areas such as data analytics, preparing the ground for what would become cloud computing, and overseeing the purchase of PricewaterhouseCoopers, giving IBM a stronger services arm.

As margins for low-end hardware shrank, he took the dramatic step of selling the company’s PC business, with its iconic ThinkPad laptop line, to Chinese firm Lenovo. And, notably, he retired on one of the largest packages given to any chief executive – a gobsmacking $271 million.

Overall, Palmisano dealt well with that recurrent challenge to the big tech giant survivors: an endlessly evolving technology environment that can prove difficult to read in advance.

His 2012 successor, IBM insider Gina Rometty (she began her career at IBM in the 1980s as an engineer), stepped into the position just as a fresh wave of difficulties hit. Revenue for software, services and hardware slumped as customers opted for cheaper, cloud-based services.

While IBM does have cloud offerings, revenue from such lower-margin services areas cannot offset the lost income. That’s left nine quarters in a row of declining revenues without much promise of any immediate change. The company’s guidance for 2015 last week fell short of some analysts’ predictions.

"What's different from the past – because we've lived through every one of these [technology] transitions – is the speed at which this is happening," Rometty told Fortune recently. "We have to keep moving at that speed."

Her strategy is to shed unprofitable areas – its low-end server division recently went to Lenovo – and focus on cloud, mobile and analytics (based on insights gained from its Watson supercomputer system). A recent alliance with Apple indicates IBM is ready to explore opportunities from fresh partnerships. But the company has said such services are not yet at a large enough scale to yield significant profits.

Will it be enough? The fact that shares rose considerably on the rumours of massive job cuts indicates the market would not be averse to job cuts that could also hit the company's significant Irish operations. (Though that said, Ireland features strongly in some of the company's new growth areas, such as analytics and artificial intelligence.)

It’s certainly way too early to predict doom and gloom. IBM remains cash-rich, sitting on a stockpile and an R&D budget most corporates would envy. Many analysts are betting on a share rise over time.

And IBM just doesn’t readily fit any industry assumptions. It’s a very old company, yet in a cutting-edge space. It has taken difficult roads before. And, unlike many competitors, it has successfully weathered dramatic makeovers.