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IBM To Furlough Most Of Its U.S. Hardware Staff In Late August To Cut Costs As Unit Struggles (Update)

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Some IBM staff in the United States will be getting a bit more time off at summer's end--whether they like it or not. Most U.S. employees of the systems and technology group and those supporting it within IBM's integrated supply chain are going to have to take a week furlough at one-third their normal pay starting Aug. 24 or 31, Forbes has confirmed after an initial  Bloomberg  report. Those working in manufacturing and sales largely dodged the salary hit but executives in the unit will receive no pay during the "mandatory time off."

These aren't the first furloughs the company has tried to reduce costs, IBM spokesperson Jay Cadmus wrote in an email, but IBM declined to give specifics of past furloughs. Shares of the company were down about two percent at $191.48 as of noon Tuesday. That decline could also be attributed to bad news for the company from Credit Suisse, which downgraded the stock this morning to underperform.

"This measure is one of many that we are taking as we return to a sustainable, profitable business model," Cadmus says. IBM's list of ways to do that includes a little bit of everything: new product launches, investments, acquisitions, changes to its go-to-market, new client centers of competency for Linux and flash memory and, obviously, cutbacks in employee pay.

"In lieu of other options considered, this approach best balances the interests of employees and the competitiveness of the STG business," Cadmus adds.

A quick view of IBM's most recent financials shows that the company has also been undertaking expensive "workforce rebalancing" that cost the company $700 million last quarter, the difference between a three percent increase in non-GAAP net income and a 12 percent drop.

The move suggests pressure at IBM's trailing hardware unit to meet year end goals. Hardware had been the worst performing division for the company, down 12 percent year to year at $3.8 billion. Software, meanwhile, was up four percent year-to-year to $6.4 billion, with global technology services also down to a lesser extent at a five percent drop to $9.5 billion for the quarter. Overall earnings were down 13 percent year-to-year at $2.91 a share.

IBM chairman and CEO Ginni Rometty called performance for software and mainframes "strong" at the time. But the only areas of growth within hardware were for the company's System Z mainframe servers and for its Microelectronics OEM product, with its retail store solutions, power systems, System X products and system storage all down in revenue.

IBM had also recently lost momentum in the Americas market where these workers will be furloughed, with quarterly revenue down three percent at $10.7 billion; revenues in Asia-Pacific had fared even worse. Revenue in Europe/Middle East/Africa and growth markets like the 'BRIC' countries of Brazil, Russia, India and China was flat for the quarter.

Bloomberg reports that IBM had just over 434,000 employees globally at year's end but couldn't break out how many U.S. employees are in hardware and facing the furloughs; Cadmus declined to provide those details to Forbes as well. Executives in both the STG and ISC units won't draw pay during the period. IBM reportedly was looking to sell part of its server division to Lenovo Group early this year before a potential deal fell through.

[Updated at 10AM on 8/6 with comment from IBM.]

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