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IBM: Job cuts mean savings of $1 billion in 2006

Layoffs of up to 13,000 will be generally voluntary in Europe but involuntary elsewhere, including in the U.S.

IBM expects its restructuring to result in up to $500 million in savings this year and double that figure in 2006, the company said Thursday.

The computing giant on Wednesday announced plans to cut between 10,000 and 13,000 jobs--about 4 percent of its total work force--and to streamline its European management organization. It will take a charge of between $1.3 billion and $1.7 billion.

In a conference call Thursday, Chief Financial Officer Mark Loughridge detailed the plans, saying they will result in a "more competitive cost structure."

Loughridge said the majority of the job reductions will be in Europe, particularly in IBM's Global Services division.

The changes were expected following disappointing first-quarter financial results. France, Germany, Italy and the United Kingdom had been weak spots in the first quarter.

To lower costs, Big Blue will move some of its operations out of Western Europe to lower-cost regions. IBM will also seek to "standardize" job functions to reduce repetitive processes and lower the cost of its support services, Loughridge said.

IBM is planning to reduce the number of workers in Europe by voluntary departures but said there will be involuntary cuts in the United States. The company has begun negotiations with European labor organizations.

"Weak market conditions in some countries, notably in Western Europe, compounded with low levels of attrition have resulted in overcapacity and skills mismatch with market demand," he said

The job cuts are part of IBM's efforts to revamp its Global Services organization to pursue higher-margin services contracts. Global Services represents about half of IBM's $96 billion in revenue.

Loughridge also commented on a planned overhaul of IBM's European management structure. The company will strip out upper management layers to enable quicker decision making and reduce bureaucracy.

He said the company is not anticipating any disruptions in revenue from the reorganization because "customer-facing" sales employees will remain in place.