The initial consensus on Wall Street regarding IBM's (NYSE: IBM) announcement Wednesday that it would eliminate another 1,570 positions is that the effort represents another prudent action in its "reorganizational tripod" of fewer positions, cheaper positions, and reinvented positions.
Further, the reorganization effort represents nothing less than wholesale transformation of the company as it confronts the multi-directional competitive winds of the globalization era. Job eliminations bring Big Blue more in line with today's continuously right-sizing, temperature-taking business environment. Wholesale shifts of jobs to lower-cost markets -- IBM's India workforce surged to 52,000 in 2006 from a scant 9,000 in 2003 -- helps IBM make up for lost time vis-a-vis lower-cost competitors. And, perhaps most significant, IBM's operational shifts -- including rethinking how it delivers services -- create a more nimble, higher-value company that can respond to clients' needs quicker and more productively. IBM's shares closed Wednesday up $1.03 to $106.93.
Further, more position "rebalancing" may be ahead: IBM, which with Wednesday's cuts has now eliminated 3,700 positions in 2007, still has about 356,000 employees, including an eye-opening 128,000 based in the United States. And as part of those cuts, many analysts in the quarters ahead see a continued trimming of global services in favor of software, where revenue is growing faster.
However, this is not to state that Big Blue will not add positions, where warranted: if software and other operations continue to show sustainable growth, employee additions in those operations are likely to follow.
That would seem to contradict the tenet of fewer positions, but overall it doesn't: most analysts still envision an IBM with fewer positions overall in 2008 than in 2007, and in 2009 than in 2008.
Investment Category: IBM is a moderate-risk stock not suitable for low-risk investors. Further, those investors seeking a quick 30%-40% equity gain should pass on IBM. However, assuming continued above-trend global GDP growth, IBM is positioning itself to reward investors with a minimum 2-3 year investment horizon.
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