- BRW Lists
Published 20 June 2013 12:26, Updated 26 June 2013 14:22
IBM has neither confirmed nor denied reports that it is laying off up to 1500 staff in Australia. Photo: Bloomberg
Updated | The 1500 jobs on the line at IBM’s Australian operation mirrors the decline in the server market as business customers shift to cloud computing and software-as-a-service.
The number of job cuts reportedly looming at IBM this year is 1200 to 1500 – greater than what car maker Ford Motor announced would occur as a result of its exit from Australian manufacturing in 2016.
The acceleration of the cloud trend, which changes the way corporate customers buy technology, has left IBM and other traditional vendors such as Hewlett-Packard and Dell scrambling to adapt.
IBM already has cloud computing services and has indicated it will focus on this as a growth area. IBM has neither confirmed nor denied the reported redundancy program, but a spokeswoman told BRW the business was repositioning.
“IBM is investing in growth areas for the future: Big Data, cloud computing, social business and the growing mobile computing opportunity,” she says. “The company has always invested in transformational areas, and as a result we need to remix our skills so IBM can lead in these higher-value segments in both emerging markets and in more mature economies.”
IBM’s Australian cloud customers are currently served by a data centre in Sydney, launched in October 2012, as well as a regional data centre in Singapore. Competitors such as Microsoft and Oracle have also moved to open Australian facilities to calm customer fears over data sovereignty.
Rodney Gedda, an analyst at technology firm Telsyte, says it is not easy to speculate on the rationale for the job cuts since the decision was made behind closed doors, but in general, traditional vendors like IBM have been hit by the trend for businesses to embrace cloud computing and software-as-a-service.
Gedda says IBM’s push into cloud services is the right move but the transformation would not be painless.
“While [the trend] opens up a whole new business of cloud services, inevitably when you’ve got a large company with a large installed based there’s going to be disruption from new technology and that’s possibly one reason why IBM needs to cut back,” Gedda says. “There’s possibly less need for these type of people if it’s moving to more of a cloud model and software-as-a-service model, perhaps it doesn’t need as many people supporting on-premise infrastructure.”
Hardware vendors typically describe cloud computing as a sales opportunity on the basis that they sell servers to data centres as well as end-users, but Gedda says this argument is overstated.
“The key difference is that cloud service providers tend to drive a lot of efficiency out of their systems and they even go to the trouble of engineering their own, as well, so they’ll go to OEMs [original equipment manufacturers] and purchase custom servers and they’ll go to manufacturers and get them to build uniquely specced servers for their environment,” Gedda says.
“These sort of activities happen in the cloud space and the traditional systems vendors have struggled to keep up with that delivery model. It doesn’t mean on-premise IT is dead, it just means it has to compete with another dynamic, and it has a flow-on with support and software sales and infrastructure management sales, the whole eco-system.”
The hardware market is declining rapidly and the falls are even more dramatic in Australia than elsewhere in the world, according to analyst firm Gartner.
In Australia, shipments of servers fell almost 4.5 per cent in the first quarter of 2013, compared with the same period in 2012, while revenue from server sales declined 20 per cent. In Australia, HP is the dominant player in terms of both number of machines and revenue. IBM is number one globally by revenue but second to HP in Australia, with a 20 per cent share of server revenue.
Worldwide server sales also declined in the first quarter but by a more modest 0.7 per cent year on year for shipments and 5 per cent year on year for revenue, according to Gartner.
Alongside the decline in hardware sales, Telsyte’s Gedda says the rise of cloud computing and software-as-a-service meant that modern businesses were much less likely to buy all their technology from a single vendor. Line-of-business managers and chief marketing officers were making software-as-a-service decisions on an ad hoc basis. This in turn hits traditional vendors in both the hardware and the software space, such as IBM, Dell, and HP.
Not coincidentally, HP has also announced a massive round of layoffs, telling analysts in May it would cut 8 per cent of its workforce worldwide. HP is the world’s largest vendor for both PCs and printers, so it is arguably even more product-focused than IBM.
Gartner figures suggest PC sales, including both desktop and mobile, are also in sharp decline, with an 18 per cent decline in shipments in Australia and an 11 per cent drop worldwide.
The travails of Dell and its journey in and out of public and private ownership are also well documented. However, Dell is encroaching on HP and IBM in the server space, increasing its worldwide market share by revenue from 14.9 per cent in first quarter 2012 to 18 per cent a year later, while its two bigger rivals dropped a few percentage points.
Gedda says it is possible the high Australian dollar and other economic forces were contributing factors. The SMH says that IBM will seek to send some jobs offshore to New Zealand or Asia because of the high cost of business in Australia.
The SMH report suggests that IBM was cutting 10 per cent of its workforce in Australia, but only 2 per cent globally, in the wake of disappointing first-quarter 2013 results. IBM had 434,246 employees globally on December 31, 2012, according to the IBM 2012 annual report.
Worldwide, IBM reported $US3.03 billion in net profit off the back of $US23.41 billion in revenue for the three months ended March 31, 2013. This was a fall from $3.07 billion in net income and $24.67 billion in revenue for the same period in 2012.
For the 2012 full calendar year, the company reported that Asia Pacific revenue grew 2.6 per cent year on year to $25.94 billion. Growth markets, which includes Australia, grew 4.2 per cent year on year, while major markets declined 3.5 per cent.
The biggest part of IBM’s business globally is its consulting division, IBM Global Services. The 2012 annual report reports $US58.8 billion in Global Services revenue for 2012, when technology services and business services are combined, down 2.3 per cent on 2011.
Revenue from hardware sales also fell, with $US17.67 billion in reported revenue for the Systems and Technology division, down 6.9 per cent.
The bright spot was the software division with revenue of $US25.45 billion for the year, up 2 per cent.