IBM and HPE reveal cuts to jobs and executive pay

Falling revenues forces HPE into $1bn cost-saving plan while IBM undergoes first shake-up under new CEO

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Two of tech's biggest players have announced sweeping job cuts as the economic effects of COVID-19 continue to take their toll, with IBM reducing its staff count by potentially thousands and HPE cutting executive pay.

IBM has already swung the axe, with the number of affected staff thought to be in the thousands, according to people familiar with the company's plans, speaking to Bloomberg. The publication spoke with a Californian-based worker who lost his job along with his entire team of 12. Job cuts are also being made across sites in other US states including Pennsylvania, Missouri, New York.

The layoffs are thought to affect several divisions across IBM including its Global Technology Services division, which offers IT outsourcing, the Wall Street Journal (WSJ) also suggests.

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It’s unclear how much of an effect the pandemic has had on IBM’s plans, though the actions represent the first major staffing shakeup since CEO Arvind Krishna took charge in January 2020. Krishna transitioned into the role with an ambition to revive growth at IBM, after recent quarters of declining revenue.

“IBM’s work in a highly competitive marketplace requires flexibility to constantly add high-value skills to our workforce,” an IBM spokesperson told Bloomberg. “While we always consider the current environment, IBM’s workforce decisions are in the interest of the long-term health of our business.”

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“Recognizing the unique and difficult situation this business decision may create for some of our employees, IBM is offering subsidized medical coverage to all affected U.S. employees through June 2021.”

HPE, meanwhile, has outlined plans to make severe cost reductions following a collapse in revenue in the latest quarter, falling 16% year-on-year $6 billion. As a result of job cuts, executive pay reductions, and other measures, the company expects to save between $1 billion and $1.3 billion over the next three years.

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In an earnings call, the firm announced it would be reducing employees’ base salaries from 1 July through to the end of the year. The CEO and each executive officer at the executive VP level sustaining a 25% pay cut, while the base salaries of each executive officer at the senior VP level will suffer a 20% cut.

HPE will also embark on an immediate “cost optimisation” plan which will involve realigning the workforce to “areas of growth” and implementing measures to simplify the product portfolio, supply chain structures, and digital customer support model.

Each of the company’s divisions suffered losses in the last quarter, with High-Performance Compute & Mission Critical Systems revenue down the sharpest year-on-year, a fall of 18% to $589 million. This was followed by the Storage division which fell 16%, to $1.1 billion. Profit margins in both divisions also declined.

The smallest drop in revenue was in the Intelligence Edge division, which declined 2% to $665 million. This equated with an 11% operating profit margin, however, compared with 5.3% from the prior-year period.

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HPE’s recent financial performance, and the resultant cost-saving measures, have been pinned heavily on the coronavirus pandemic, and its effect on demand as well as the supply chain.

“We need to adapt in order to keep our strategic momentum even as the world has changed dramatically," the company's CEO Antonio Neri said during the latest earnings call.

"We are taking a deliberate set of actions to protect our financial foundation, become a more agile organization, and align our resources to critical core businesses and areas of growth that accelerate our edge-to-cloud platform-as-a-service strategy."

He added the company was implementing unpaid leave for some employees, as well as restricting external hiring through to the end of the fiscal year and putting salary increases on hold.

As for how many staff HPE is planning to cut, Neri suggested this hasn't yet been determined, in an interview with Bloomberg, and that the company will spend the next few months working out the details.

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As with IBM in recent years, HPE has suffered from consistent falling revenues since splitting from HP in 2015. The firm has, however, made a series of moves in recent years in order to change its fortunes, including the acquisition of supercomputing behemoth Cray last year.

Neri declared in 2019 that his vision for the company is one that champions a “cloudless” future, adding that the cloud wasn’t a destination, rather, an “experience”, where businesses encounter true cloud interoperability.

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