IBM confirms mass layoffs; 3,900 employees to lose their jobs
What's the story
International Business Machines Corp. (IBM) has joined the list of tech giants to lay off employees in the last few months. The company announced that it will fire 3,900 staffers or 1.5% of its global workforce. IBM confirmed that the terminations are part of asset divestments and not based on 2022 performance or 2023 expectations.
Context
Why does this story matter?
Technology companies have been affected by a slowdown in spending. An uncertain economy and fear of recession have forced consumers to tighten their purse strings. Companies are starting to look at layoffs as an insurance policy against an uncertain future. It helps them cut costs drastically. With the economy set to continue in the same tone, we might see more layoffs in the future.
Layoffs
Layoffs will affect Kyndryl and Watson Health
The layoffs will affect Kyndryl Holdings, IBM's IT services spinoff that it launched last year and a part of the AI unit Watson Health. The company said that it will incur a $300 million charge this quarter toward severance-related payments. The firm is still "committed to hiring for client-facing research and development," said chief financial officer James Cavanaugh.
Missed target
The company missed its annual cash target
IBM missed its annual cash target in 2022. Last year, the company's cash flow was $9.3 billion, which was below the $10 billion target it had set for itself. This was due to working capital needs that exceeded expectations. Missing the cash target dampened the excitement around the company beating revenue expectations in the final three months of 2022.
Quarterly results
The firm's Q4 revenue beat estimates
In the last quarter, IBM recorded a revenue of $16.69 billion, higher than analysts' estimate of $16.40 billion. The company's revenue grew by 5.5% in 2022, the highest in a decade. It posted a net income of $2.71 billion, compared with $2.33 billion in the year prior. Many segments of the firm, including software and cloud, registered a year-over-year increase in revenue.
Shares down
The market expected IBM to make deeper cuts
After the company announced its decision to axe employees, its shares fell by 2%. The drop was attributed to the job cuts and missing the free cash flow target. "It seems as if the market is disappointed by the size of the announced job cuts, which only amounted to 1.5% of its workforce," an analyst at Investing.com told Reuters.