Looking to cut costs and put its executives in closer contact with customers, IBM plans to restructure its operations in Europe and will make them public by the end of June.
Along with job cuts that are expected to be in the thousands, IBM will also close some of its Western European operations while moving others to Eastern Europe, a source familiar with the plan said Friday.
On Thursday, IBM reported first quarter net income of US$1.4 billion, on revenue of US$22.9 billion, falling short of the US$23.6 billion expected by analysts.
March in particular proved to be a difficult month, as the company experienced significant declines in revenue in a number of European countries, in terms of constant currency, compared to 2004: Germany fell by 8 percent, Italy dropped by 7 percent and France declined by 3 percent.
IBM Chief Executive Officer Sam Palmisano said on Thursday that the company experienced difficulty closing transactions in the final weeks of the quarter. In the same conference call with journalists and analysts, Mark Loughridge, IBM senior vice president and chief financial officer, said that IBM will make reductions in certain areas during the second quarter, especially in Europe and Asia.
IBM has been briefing analysts on background on its plans for restructuring it EMEA (Europe, Middle East and Africa) operations and some observers speculated that the declines in those countries might be the disturbance effect of the coming layoffs.
"We believe Q2 will be a transition quarter, as IBM will look to surgically make headcount reductions in targeted businesses and geographies such as European services," analyst Steve Fortuna of Prudential Equity Group said in an e-mail assessment of IBM's first quarter performance. "We have extreme confidence that the company will re-emerge through this quarter well positioned for strong performance in the back half of the year."
Representatives from IBM in Europe on Friday declined to discuss details of the restructuring but did release a statement. "Our country management teams are focused on the opportunities presented by their local marketplace and requirements of their local clients. As we decide how we will move forward, we will interact with employees and employee representatives as required to discuss the proposals we are considering," IBM said.
According to IDC analyst Martin Hingley, IBM has been considering getting rid of it current structure in Europe for some time and moving to a system of small structures with direct accountability.
"There are a lot of people at IBM whose careers have been made without direct contact with customers," Hingley said. "It seems reasonable that IBM should change things so that senior executives have direct customer experiences."