[mseebach]

This sucks for the people concerned. But IBM's core responsibility can't be to maintain comfortable jobs that aren't sufficiently profitable. The world has changed dramatically and IBM hasn't changed with it. The longer you go without shedding the dead weight, the more painful it gets, but you still have to do it.

The article suggests that shedding jobs equals not investing in the future, while also mentioning several paragraphs later that IBM is investing billions in new business areas. Increasing EPS means freeing up more cash to invest.

[dalke]

Without knowing the breakdown of which units are being laid off, how do you or the shareholders have the information to know if management is indeed "shedding the dead weight" or is instead tweaking the numbers to meet Wall Street expectations?

You don't. Increased opacity makes it harder to make any judgements. For example, IBM is quoted as saying they have "more than 3,000 job openings", but those could be pro forma openings which aren't expected to be filled, and exist mostly to promote the idea that IBM is hiring. The real test would be the number of people hired, but IBM does not publish that information.

The article does not say, as you believe, that IBM is "investing billions in new business areas". It says IBM "committed $1bn to its new Watson unit and $2.2bn to expand its cloud offerings". Those appear to be an expansion of existing business areas, and not an investment in new ones.

It also says IBM has "investments in areas such as nanotechnology which will bring hundreds of new jobs to New York State." IBM has been in nanotechnology for over 20 years, so you can't conclude from this article that this is a new business area.

[iends]

The job cuts were largely in STG and GTS and these are the divisions with the most dead weight, so while it's possible IBM cut non-dead weight jobs these cuts do not seem to be random across the board cuts.

[dalke]

Could you define "dead weight" in this context?

Is it that STG and GTS were a net loss to the company, or is it that those groups weren't profitable enough to make the alleged $20/share goal?

If IBM has decided to leave the hardware business as a long term goal, then is it fair to call the hardware people a "dead weight" if that part of the organization is still profitable? The term seems to imply that the people themselves are at fault.

[iends]

I'm not sure what's alleged about the $20/share goal.

I do not know the income, off the top of my head, for STG and GTS, it's they made a profit, but revenue growth was negative. When you're trying to allocate capital for a business would you rather put your capital towards products with a 5% margin (hardware) or a 85% one (software)?

IBM has been pretty clear that they want to jettison the lower margin businesses in favor of higher margin ones. Maybe dead weight isn't the right term for these employees, but from a business perspective these low margin products are more or less dead weight.

[dalke]

I know only what I read in the linked-to article. I don't how important the $20 earnings per share is to IBM, that they might let off profitable groups solely to make that goal. Hence "alleged."

But "insufficiently profitable" and "dead weight" are not synonymous, just like "maximizing profit" and "greedy bastard" are not synonymous. The first of each pair are economics terms, the second are social terms.

To turn your question around, would you rather put your capital towards products with 85% margin or 75%? Does your choice of one make the other by definition a dead weight?

[Spooky23]

The margin question is a good one, and you have to ask it in context of IBM. Nobody wakes up and says "Hey, let's go buy SVC for storage virtualization!". You go to buy IBM storage (lower margin) and layer on SVC and the other management software.

Think of a fast food scenario. The marginal cost of cheese on a hamburger is like 95% profit for a restaurant. That doesn't mean that you stop selling hamburgers for $1 and only sell slices of cheese for $0.25.