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IBM begins layoffs

Big Blue notifies about 1,000 employees in its server division that their jobs are being cut, the first step in companywide cutbacks.

IBM began handing out pink slips to employees on Thursday, the first step in anticipated companywide cutbacks.

IBM has notified approximately 1,000 employees in its server division that their jobs are being eliminated, according to a representative from Alliance@IBM, a union. Alliance@IBM added that it believes about 900 other employees were also notified this week that they will lose their jobs, for a total initial reduction of 1,900 employees.

The layoffs were widely expected after the company experienced a steep slowdown in first-quarter sales.

"The server division announced 1,000 cuts (at locations) across the company today," said Lee Conrad, national coordinator for Alliance@IBM. The layoffs were announced at an employee meeting, he said.

An IBM representative said that Alliance@IBM is not an officially sanctioned IBM union. But she confirmed that the server division began a "job resource action."

"We look at ways to eliminate redundancies and consolidate work, and that helps us achieve greater efficiencies for the business. It's just the prudent thing to do," IBM spokeswoman Jan Butler said.

Butler would not confirm the number of employees affected by the action. Some cuts, though, are coming at IBM's facilities in Rochester, Minn., where its iSeries servers are designed, according to IBM spokesman Tim Dallman. He said about 150 positions out of a total of 5,000 are being cut at the site.

The cuts are the result of work to share server technologies across IBM's four server lines, Dallman and Butler said. Notified employees stay on IBM's payroll for 30 days, Dallman said, and are eligible to apply for other IBM jobs.

Though employees are losing jobs, no specific programs were cut, Butler said. Some employees are being offered the chance to move to new locations if their server research and development work is being consolidated in a different place, she added.

Alliance@IBM's Conrad also noted that employees in different divisions were given notice, including about 475 people at IBM's storage group in San Jose, Calif., 100 to 150 people in the company's Software Group and about 250 people in various positions at the company's Research Triangle Park, N.C., campus.

The layoffs come as no surprise after IBM CEO Sam Palmisano told Wall Street analysts last week that the company needed to cut costs. Palmisano became IBM's CEO in March.

"There are other areas of our business that we need to be more efficient in. We know it," Palmisano told attendees at the company's spring analyst meeting in New York last week. "You'll hear more about what we are doing to address those issues to get more efficient."

Indeed, it's very likely analysts will hear a lot more, according to Alliance@IBM.

"We expect this to be the first wave today, and other cuts will happen next week in Global Services and Microelectronics," Conrad said.

All told, most analysts expect IBM to lay off about 8,000 to 9,000 employees.

But the company, they say, is likely to shed between 8,000 to as many as 20,000 through attrition and by spinning off or selling unprofitable businesses.

For example, Big Blue inked a preliminary agreement with Hitachi to merge the two companies' storage divisions and create a standalone joint venture.

Typically, IBM loses as many as 15,000 employees through attrition alone each year, executives have said.

IBM started 2002 with just less than 320,000 employees.

News.com's Stephen Shankland contributed to this report.