By Caroline Humer
NEW YORK (Reuters) - International Business Machines Corp. (NYSE:IBM - News), faced with stagnant sales due to a technology spending slowdown, is poised for its largest work force reduction since the early 1990s, according to a person close to the situation. ADVERTISEMENT
The source said the job cuts are anticipated at between 2.5 percent and 3 percent of the world's largest computer maker's 318,000-member work force.
Most of the cuts are expected to take place in the second quarter. The cuts are seen as targeting specific areas rather than companywide.
Analysts have widely anticipated the reductions since IBM announced first-quarter earnings that fell short of its and Wall Street's expectations.
A company spokesman in Europe declined to comment.
"We're constantly rebalancing our work force according to market conditions," he said, "but we have no comment on this specific rumor."
Indeed, IBM in recent years has made mostly small cuts in specific divisions in what it calls skills rebalancing. For instance, in November it cut 1,000 people from its semiconductor division, which is suffering from the worst industry downturn in a decade.
Gartner Inc. research director Tom Bittman said he expects the first cuts to be in the Global Services Division, which accounts for about half of IBM's employee base and more than 40 percent of revenue.
"I wouldn't be surprised to see numbers in the thousands in Global Services," Bittman said. "That would be the easiest and probably the least painful area where IBM could make cuts."
SoundView Technology analyst Gary Helmig said earlier this week that he expects about a 10 percent cut in IBM's North American sales and distribution force, which he estimates is currently about 10,000 people.
The anticipated job cuts would be the largest for IBM since the early 1990s, when it was struggling to be profitable.
In 1993, Lou Gerstner took over as chief executive and is credited with turning the company around. On March 1, he ceded the CEO job to Sam Palmisano.
Last month, IBM issued its first earnings warning in a decade after first-quarter results came in far short of expectations. The company has also battled questions over its accounting as investors remain wary of such practices since the Enron Corp. (Other OTC:ENRNQ.PK - News) scandal.
IBM shares closed at $79.93 on the New York Stock Exchange on Thursday, down about 3 percent. In premarket trading on Instinet, it was up slightly at $80.
IBM shares have fallen 44 percent this year, far more sharply than its rivals. Computer services company EDS Corp. (NYSE:EDS - News), for example, has dropped 22 percent, and computer company Hewlett-Packard Co. (NYSE:HWP - News) is down 3 percent.