International Business Machines Corp (IBM - Analyst Report) has cut its workforce by 1,300 in the U.S. as a part of its workforce rebalancing initiative, reported Bloomberg. The company is expected to spend approximately $1 billion this year for the current initiative and the majority of the spending will be in the current quarter.
Alliance@IBM, affiliated with Communications Workers of America union, reported that among the positions that are being eliminated, 222 persons were from the marketing wing and 165 from the research and development (R&D) wing.
IBM, in its first-quarter earnings release confirmed that most of the job cuts would be outside the U.S. Thus far, the company has initiated 700 job cuts in Germany, 128 in Denmark and 250 in Italy, reported Bloomberg.
Through these restructuring initiatives, IBM expects to achieve its fiscal year operating earnings per share target of $16.70. Moreover, IBM’s current $1 billion restructuring plan is a significant increase from the $803 million that it had spent in 2012.
The company expects the current initiative to help results as IBM reported a dismal first quarter in April. Revenues declined 5.1% from the year-ago quarter and 20.1% on a sequential basis. Unfavorable foreign currency movement, particularly in the yen, had a negative impact of 2.0% on first-quarter revenues. Though earnings increased 7.9% from the year-ago quarter, they plunged 44.3% primarily due to lower revenues.
Although IBM reported a dismal first quarter, we believe that the strong backlog, improving outsourcing signings and new contract wins will boost the top line, going forward. However, sluggish IT spending and continuing weaknesses in the domestic market and Euro zone are the major concerns in the near term.
Additionally, deteriorating results in the hardware segment remain a major concern, going forward. IBM continues to expand its Power systems into the Linux market. IBM is also focusing on further developing its flash technology and storage business. We believe that these improvements will boost hardware revenue, going forward.
Product strategies will also help it to counter the strong competition from Oracle (ORCL - Analyst Report), Hewlett-Packard (HPQ - Analyst Report) and EMC Corp. (EMC - Analyst Report), going forward.
Currently, IBM has a Zacks Rank #3 (Hold).