IBM slashes 3,900 roles, SAP chops 3,000

Latest layoffs at the tech giants

IBM has joined the ranks of a number of other tech giants, like Microsoft, Google and Meta, in terminating of thousands of employees, amid challenges posed by the global economy.

The company announced the move on Wednesday, stating that it would cut 3,900 jobs, or 1.5% of its worldwide workforce, as part of asset divestment.

IBM chief financial officer James Kavanaugh said the layoffs are related to the previously announced spinoff and sale of Kyndryl, an IT infrastructure services business that was split from IBM in 2021, and part of AI unit Watson Health, which is being acquired by an investment group.

According to Kavanaugh, the move would cost the company around $300 million this quarter. Despite this, IBM intends to recruit employees in higher-growth areas, he added.

Kavanaugh clarified that the decision to cuts jobs was not based on the financial results of 2022 or forecast for 2023.

On Wednesday, the company posted mixed results, with sales somewhat higher than anticipated but operating profit and free cash flow falling short of expectations.

Due to higher-than-expected working capital requirements, IBM's 2022 cash flow was $9.3 billion, less than its target of $10 billion.

Total revenue for the fourth quarter was $16.69 billion, compared with analysts' projections of $16.40 billion, according to Refinitiv.

The fourth quarter saw a sequential slowdown in the growth of the software and consulting business, although the cloud division showed positive growth and increase in deal signings in 2022. IBM's hybrid cloud revenue increased 2% in the quarter ended December 31.

The company projects annual revenue growth in the mid-single digits in constant currency terms, down from 12% last year. Free cash flow is estimated to be $10.5 billion in fiscal 2023.

Arvind Krishna, chairman and CEO, said that the company had "invested in hybrid cloud and AI capabilities" to strengthen the software portfolio.

"This year, we'll unlock more productivity, expand our strategic partnerships, and put more investment in specific growth markets," he added.

"Clients in all geographies increasingly embraced our hybrid cloud and AI solutions as technology remains a differentiating force in today's business environment. Looking ahead to 2023, we expect full-year revenue growth consistent with our mid-single digit model."

When asked about the outlook for enterprise tech demand this year, Krishna said that the majority of their clients are confident they would "emerge stronger."

"We're seeing them double down," despite multiple challenges in 2023, he noted.

While other tech firms may have lately reported more pessimistic estimates, Krishna said the reason "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 noted.

SAP to lay off 3,000 staff

SAP has announced plans to cut 3,000 jobs, or 2.5% of its global workforce after a fall in profits.

The job cuts were announced as annual profits fell 68% in 2022 to €1.71 billion.

"This was a difficult decision, and we are deeply aware of the personal impact of these changes," the company said in a statement. "We will provide colleagues the care and support they need during this challenging time."

Chief financial officer Luka Mucic said: "We expect only a moderate cost saving impact for 2023, and a more pronounced one in 2024, about 300 million euros to 350 million in run rate savings as of 2024."

The German software giant is also reported to be looking to divest itself of its remaining stake in Qualtrics, the US experience management software company it acquired for $8 billion in 2018. Qualtrics was later floated by SAP. Currently, it is valued at $7 billion, with SAP retaining a 71% stake.

SAP is expected to focus on its cloud business, which it predicts will to grow by about 25% in 2023. SAP CEO Christian Klein spoke of a major deal with BMW to be unveiled shortly. "We are going to announce a unique strategic partnership with BMW betting on SAP on all dimensions - one of the biggest deals ever, which was signed yesterday," he said.