IBM and SAP are the latest tech companies to slash thousands of jobs, as they reorganize businesses and profits come under pressure from a slowing global economy.
IBM (IBM) announced the cuts Wednesday, saying they were related to the previously announced spinoff and sale of two business units. Some 3,900 positions, or 1.5% of its global workforce, are expected to go. The move will cost IBM (IBM) about $300 million this quarter, a spokesperson confirmed.
SAP (SAP), Europe’s largest software company, will lay off 2.5% of its global workforce of 112,000, or around 2,800 employees, according to an earnings report published Thursday. The restructuring will cost between €250 million ($272 million) and €300 million ($381 million); the company’s shares were down 3.3% in Frankfurt.
In a live streamed presentation to reporters, SAP CEO Christian Klein said that the restructuring was “targeted” and would allow the company to invest in the areas “where it really matters for SAP to be competitive in the future,” particularly its cloud business.
The news comes as other major tech companies downsize their workforces around the world in response to the gloomy global economic outlook and waning demand for some digital services following the pandemic. Last week, Google (GOOGL) parent Alphabet and Microsoft (MSFT) each announced layoffs of 12,000 and 10,000 workers, respectively.
That followed similar plans outlined by Amazon (AMZN) and Salesforce to shed thousands of jobs, with more than 18,000 employees affected at the e-commerce giant alone. The US tech sector, which went on a hiring spree during the pandemic, announced 97,171 job cuts in 2022, a 649% increase on the previous year, according to consulting firm Challenger, Gray & Christmas.
An IBM spokesperson told CNN on Wednesday that the company’s cuts were related entirely to the reorganization of the two business units affected, “not an action based on 2022 performance or 2023 expectations.”
The units affected are Kyndryl, an IT infrastructure services business that was officially separated from IBM in November, and IBM’s healthcare analytics business, which an investment firm is in the process of acquiring.
The New York-based company also reported mixed earnings Wednesday, with revenue coming in slightly higher than expected but operating profit and free cash flow lower than projected.
IBM shares were 2% lower in premarket trading in New York.
Asked about the outlook for demand for software from its business customers this year, IBM CEO Arvind Krishna said that most of the company’s clients appeared confident they would “emerge stronger.”
“We’re seeing them double down,” despite “different headwinds in 2023,” he told analysts on a conference call.
Krishna also noted that while other tech companies may have reported more downbeat forecasts recently, “the reason that we are remaining in this optimistic frame of mind [is], we have no consumer business.”
“So I think, consequently, we might be seeing a little bit different subset of the economy than those who might have a large direct exposure to a consumer business,” he added.
SAP reported a 7% year-on-year decline in operating profit in 2022, as it moved to end operations in Russia and Belarus, and collected less revenue from software licenses. It said that increased investment into research and development, sales and marketing also impacted performance.