IBM sheds more than 1,500 outsourcing jobs

Marking a second round of layoffs this month, IBM has announced it will cut 1,566 jobs from its global workforce, primarily in its US strategic outsourcing services business.

Big Blue, which employs 355,000 workers worldwide, said it expects to cut a total of 3,016 jobs by the end of the second quarter. That number includes 1,300 positions eliminated earlier this month.

The move comes at a time when the company is squeezed between operating costs and revenue for its strategic outsourcing business in the US. During the company's first-quarter profits conference call in April, chief financial officer Mark Loughridge said the company would "rebalance" its resources.

IBM's services business employs 128,000 people in the US, with the bulk of those working in strategic outsourcing, according to a company spokesman.

He said: "Strategic outsourcing is quite dynamic... contracts are renegotiated on a constant basis."

The company's strategic outsourcing business takes care of such tasks as taking over a customer's helpdesk, or data management centre, and operating it for the customer. The larger contracts typically span seven to 10 years and cost hundreds of millions of dollars. These larger contracts often involve IBM hiring employees who previously worked for the company on its software, systems or other assets.

But over the past five years, customers have been moving toward shorter contracts of two to three years, involving specific projects, said the spokesman.

He said: "They're outsourcing various pieces, so the size and length of the contract is smaller," adding such contracts usually do not require inheriting customers' assets and employees. "There's less upfront costs for us and they tend to be higher [profit] margin engagements."

Customers, as a result, may find it easier to turn to competitors for further outsourcing needs, whereas longer contracts that call for assuming customers' assets and employees may make it more difficult to jump ship.

Dawn Kawamoto writes for CNET News.com