Can IBM's Euro Problem Spread?

[UpInArms]

http://www.forbes.com/2005/05/05/cx_ld_0505ibm1.html

NEW YORK - On the surface, it might seem ironic that IBM, which has spent untold millions promoting its business transformation consulting services, could not transform its own business fast enough to avoid its present dire circumstances.

But its problems in Western Europe, where IBM (nyse: IBM - news - people ) laid blame for a disappointing first quarter, had been festering and likely could not have been avoided. Its plan, announced late Wednesday, to lay off as many as 13,000 employees had been in the works long before the earnings miss. IBM had just been waiting for a reason to pull the trigger.

"We are dealing with some history," says Mark Stahlman, analyst at Caris and Company. "IBM has had a European subsidiary in Paris since about World War II and, as is usually the case, as long as those people make their numbers, it's hard to take any significant actions."

He and other IBM watchers suspect IBM's European services division has not kept pace with changes in customer strategies and information technology (IT) services spending. The question is whether IBM's North American services business is also lagging behind the changes customers are making in services procurement. In short, are the problems more global in nature?

...more...

Ruh-Roh...

(my personal prediction is for at least 20,000 layoffs)

[pnutchuck]

1. Add those to the GM problems and the recent tarriffs the EU and

Canada have place on US exports and you have a recipe for disaster.

[aneerkoinos]

2. Hmm

Also GM reacted to problems (bloody many SUVs...) first by getting rid of everything in Europe.

IBM sold PC production to China, now cutting Europe. Soon only home terrain left.

I predict GM, Ford and IBM go bankrupt in few years. Good riddance.

[ckramer]

4. "I predict GM, Ford and IBM go bankrupt in few years. Good riddance."

Wow, you are way too pesemistic.

But Bush would invade China to let that happen.

[orwell]

3. Growth

It's probably more related to perceived growth prospects in Europe, which are widely viewed to be shrinking.

IBM is a much more service oriented business now than it has been historically. It is an attmpt to not only seek new growth but to remove some of the cyclicality to the hardware business. If you notice the recent ads on TV are touting IBM's consulting business.

[fedsron2us]

6. Your right about the poor growth prospects in Europe

being one of the main drivers. Nonetheless, it is interesting that when times get hard IBM which at core is a US multinational lays off in Europe first whilst its French counterpart CapGemini has been wielding the axe just as enthusiastically on its unfortunate employees in the US.

I think consulting can be every bit as cyclical as hardware. When the economy sinks costly consultants with their endless Powerpoint presentations soon become seen as an expendable luxury.

[orwell]

7. Diversification

Good point.

While consultancy may have its own cyclicality, the belief is that when times get tough, companies need to cut costs. Since labor represents the bulk of costs, companies tend to pare back salaried workers and hire outside consultants. Also, IT efficiency consultants can identify productivity improvements.

At the very least it is the application the theory of diversification, that you shouldn't put all your eggs (hardware) in one basket.

But you are quite correct that a falling tide (low growth/recession) lowers most boats.

Cheers!

[never_get_over_it]

9. Oh don't worry about IBM

not aiming the ax at US - they have done alot of that over the past several years - I have lots of friends who could attest to that!

[aneerkoinos]

11. Not so right

"New Europe", the new and future members are growing at hefty pace.

[Maple]

5. It would seem 'elephants can't dance'

after all.

[dArKeR]

8. I think the world is lost or just too greedy

I've seen this for decades... all talk about cutting this area, raise that quota, holding this margin, cut expenses in that area, cut labor in this area, increase advertising for that product line...

What about making the best product and/or service you can make and that's it? When was the last time you heard any of these Tera million money shows ever talk about the product is the key to a companies success? Isn't that what Steve Jobs does? Make the best darn products and if it's not good enough for the customer than it's over. Same as Costco.

[AlCzervik]

10. my sister works for IBM, her whole dept was called in

and told that they would know at the end of the month who was getting laid off. My guess is that europe and the US will take all the hit and all the cheap labor markets will get these jobs sent to them.