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IBM job cuts hit applications services unit, says union

Company hands out pink slips to 1,674, part of a larger round of layoffs expected to affect up to 5,000 people in its Global Business Services unit, according to Alliance@IBM.

IBM issued 1,674 layoff notices to U.S. employees in its applications services business on Thursday, as part of a larger round of anticipated cuts to its Global Business Services unit, according to a national representative of Alliance@IBM, an affiliate of the Communication Workers of America, which is seeking to unionize IBM.

The applications services business is one of several areas in IBM's Global Business Services unit, a massive consulting arm that last year generated $19.6 billion in revenue for Big Blue. The Global Business Services unit also posted a 9 percent increase in its revenue.

Alliance@IBM anticipates between 4,000 to 5,000 job cuts to be issued Thursday at IBM's Global Business Services unit, noting the cuts would be on par with those layoffs taken earlier in the year.

"We saw 5,000 job cuts in January-February and with the 5,000 we're expecting today, that brings it up to 10,000 cuts for just this quarter alone," said Lee Conrad, national coordinator for Alliance@IBM. "Many of these jobs are moving offshore and it's a disturbing sign for IBM and the nation."

An IBM spokesman was not immediately available for comment.

UBS analyst Maynard Um, meanwhile, noted in a research note Thursday that he finds it unlikely IBM will transfer all of the affected U.S. positions to cheaper overseas labor markets. As as a result, he anticipates a potential benefit of 10 cents to 14 cents a share to IBM's 2009 earnings.

He also noted that the cuts could signify more aggressive action than previously anticipated from IBM, though it would not be out of line given feedback he has received from the industry suggesting greater employee restructuring.

Um stated in his research note:

In Feb., IBM reaffirmed 1Q09 & FY09 EPS guidance, noting Jan. results were consistent with its outlook, aided by a strong software pipeline & solid long term services bookings. Read-through from potential further restructuring, in our opinion, is mixed. Operational efficiencies may be beneficial to EPS, but may also reflect a more challenging rev environment than thought (perhaps more in the US).

IBM shares were up less than 1 percent to $98.47 a share in morning trading Thursday.